451 F.Supp.3d 189
D. Mass.2020Background
- Plaintiffs are former FMR/Fidelity employees and class members of the Fidelity Retirement Savings Plan (401(k)), alleging ERISA breaches (duties of prudence and loyalty, prohibited transactions) stemming from post-2014 plan administration.
- The Plan held ≈ $17 billion and offered Fidelity proprietary funds via the NetBenefits platform; non‑Fidelity funds required use of a separate BrokerageLink site. After a 2014 settlement in Bilewicz, the Plan adopted two monitored Designated Investment Alternatives (PAS-W and Freedom K funds) and a mandatory Revenue Credit that returns revenue to the Plan.
- The Revenue Credit reimbursed revenue‑sharing to the Plan and applied only to current employees; many former‑employee class members did not receive full credits.
- Plaintiffs alleged (1) failure to monitor proprietary/non‑DIA funds offered on NetBenefits, (2) failure to investigate alternatives (stable value, collective trusts, separate accounts), and (3) failure to monitor recordkeeping fees; they also alleged prohibited transactions tied to administrative payments.
- The parties agreed to a case‑stated proceeding on liability (facts stipulated except for statute‑of‑limitations issues). The Court found breaches of the duty of prudence for failing to monitor proprietary funds (outside the two DIAs) and for failing to monitor recordkeeping expenses; it rejected claims that Fidelity had a duty to investigate the particular non‑mutual fund alternatives and rejected the prohibited‑transaction claim.
- FMR LLC is liable for failing to monitor its appointed fiduciaries; equitable surcharge/disgorgement recovery remains possible but causation and loss must be proven at trial.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Effect of prior Bilewicz settlement / release | Release cannot bar claims based on fiduciary duties that arise after the settlement (continuous monitoring duty) | Settlement release and res judicata bar these claims | Court: Release does not bar post‑settlement continuous‑duty claims; limited class (post‑Nov.17,2014) remains viable |
| Duty to monitor proprietary funds offered outside DIAs / brokerage‑window question | Fidelity had a continuing duty to monitor all Plan investments offered in the Plan environment; NetBenefits proprietary offering was not equivalent to a self‑directed brokerage window | No duty to monitor funds offered through a brokerage‑window equivalent; if so, NetBenefits offering was equivalent and shielded Fidelity | Court: NetBenefits proprietary offering was not a brokerage‑window equivalent; Fidelity breached duty of prudence by failing to monitor proprietary non‑DIA funds |
| Duty to investigate non‑mutual alternatives (stable value, collective trusts, separate accounts) | Fidelity should have investigated these lower‑cost or superior vehicles as alternatives to mutual funds | No fiduciary duty to offer or to investigate such alternatives; plan document limited offerings to mutual funds | Court: No inherent duty to investigate those alternatives; no breach for not investigating them |
| Recordkeeping fees / Revenue Credit and prohibited transactions (PTE 77‑3) | Revenue Credit was illusory or employer compensation; class members (former employees) suffered losses because they did not receive credits; PTE 77‑3 inapplicable | Revenue Credit returned revenue to the Plan (no net transfer); mandatory credits can be considered in PTE 77‑3; PTE shields Plan‑level prohibited‑transaction liability | Court: Fiduciaries breached prudence by failing to monitor recordkeeping fees; Revenue Credit defeats Plan‑level prohibited‑transaction claim under PTE 77‑3, but former‑employee allocation issues implicate equitable relief and causation at trial |
Key Cases Cited
- Tibble v. Edison Int'l, 135 S. Ct. 1823 (2015) (announces fiduciary's continuing duty to monitor plan investments)
- Brotherston v. Putnam Invs., LLC, 907 F.3d 17 (1st Cir. 2018) (treats employer discretionary payments and analyzes revenue‑credit issues in prohibited‑transaction context)
- LaRue v. DeWolff, Boberg & Assocs., Inc., 552 U.S. 248 (2008) (individual account losses in defined‑contribution plans can give rise to relief under § 1132(a)(2))
- Varity Corp. v. Howe, 516 U.S. 489 (1996) (equitable relief under § 1132(a)(3) and fiduciary duties context)
- Mertens v. Hewitt Assocs., 508 U.S. 248 (1993) (limits on monetary remedies available under ERISA § 1132(a)(3))
- Lockheed Corp. v. Spink, 517 U.S. 882 (1996) (distinguishes settlor acts from fiduciary acts)
- Tussey v. ABB, Inc., 746 F.3d 327 (8th Cir. 2014) (fiduciaries can breach prudence by failing to monitor recordkeeping fees)
- Hecker v. Deere & Co., 556 F.3d 575 (7th Cir. 2009) (plan sponsors may offer proprietary funds but must respect fiduciary exemptions and prudence)