Kelley v. Fidelity Management Trust Co.
829 F.3d 55
1st Cir.2016Background
- Six participants and one plan administrator sued Fidelity entities alleging ERISA fiduciary breaches for keeping “float” (interest on redemption cash) instead of crediting it to plans.
- Fidelity acted as trustee/transfer agent: mutual funds redeemed shares to a Fidelity redemption account, moved cash overnight to FICASH (Fidelity-controlled), returned principal (not interest) to the redemption account, then disbursed to participants (electronic transfer or paper check drawn on a Fidelity disbursement account).
- Plaintiffs did not allege any participant received less than contractually promised benefits; they sought relief on behalf of the plans asserting float is a plan asset that Fidelity misused.
- Plaintiffs’ claim depended on the premise that float (interest earned while cash transited Fidelity accounts) is a plan asset under ERISA, making Fidelity’s retention actionable under ERISA §§ 404(a) and 406(b).
- The district court dismissed under Rule 12(b)(6) for failure to allege facts showing float is a plan asset; the Secretary of Labor urged a different theory (failure to obtain plan permission) but that theory was not raised timely by plaintiffs.
- The First Circuit affirmed, holding plaintiffs failed to plausibly allege float was a plan asset given the distribution scheme and plan documents showing payouts were intended for participants, not the plans.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether float (interest on redeemed cash held during transfer) is a plan asset under ERISA | Float is derived from plan assets (mutual-fund shares) and therefore becomes a plan asset on redemption | Cash is paid to participants (not the plan); plan documents and practice show plans do not hold uninvested cash, so float is not a plan asset | Float is not a plan asset given the distribution scheme and plan documents showing payouts intended for participants, not plans |
| Whether plaintiffs plausibly alleged an ERISA fiduciary breach by Fidelity under §§ 404/406 | Retention/use of float for bank fees and to benefit funds constituted disloyal/self-dealing | Fidelity acted as intermediary distributing funds to participants as contemplated by plan agreements; no plan-asset status alleged | Dismissal affirmed because plaintiffs failed to plead float was a plan asset; court did not reach alternative fiduciary-status ruling |
| Whether plan documents or industry practice converted retained funds into plan assets | Plaintiffs argued ordinary property principles convert redeemed cash (and interest) into plan assets | Fidelity pointed to plan/trust agreements and mutual-fund disclosures showing funds and risk remained with the fund/beneficiary path | Court relied on plan documents and ordinary property analysis to conclude no transmutation into plan assets |
| Whether Secretary of Labor’s theory (Fidelity needed plan assent to use float) was preserved | Secretary argued Fidelity violated duties by using float without plan permission | Fidelity and court noted plaintiffs did not plead or preserve that theory | Theory not considered on merits (forfeited/waived); issue reserved for future timely case |
Key Cases Cited
- Vander Luitgaren v. Sun Life Assur. Co. of Can., 765 F.3d 59 (1st Cir. 2014) (insurer retained-asset-account claims rejected where plan documents contemplated payment method)
- Merrimon v. Unum Life Ins. Co. of Am., 758 F.3d 46 (1st Cir. 2014) (funds credited to beneficiary accounts not transmuted into plan assets absent plan-document intent)
- Tussey v. ABB, Inc., 746 F.3d 327 (8th Cir. 2014) (trial court/fact record found no plan rights to redemption-account float)
- Mogel v. Unum Life Ins. Co., 547 F.3d 23 (1st Cir. 2008) (distinguished: insurer violated plan terms by not following lump-sum distribution requirement)
- Saldivar v. Racine, 818 F.3d 14 (1st Cir. 2016) (standards for pleadings and plausibility review on Rule 12(b)(6))