Fidelity Settlement Should be Wake-up Call for Fiduciaries

Fidelity Investments recently settled two lawsuits filed by its own employees for a total of $12 million.  The lawsuits, filed in March 2013, alleged that Fidelity selected only high-fee investment options from its own family of fund as well as adding funds with little or no track record.  As part of the settlement, Fidelity also agreed to provide a larger selection of funds to plan participants.

Being a fiduciary is an important responsibility and requires the individual to, among other things,

  • Act solely in the best interest of plan participants
  • Diversify plan investments, and
  • Pay only reasonable plan expenses

In assessing whether fees are reasonable, plan fiduciaries need to consider many factors, not simply selecting the lowest fee (where plan participants are paying less) or the highest fee (the participants must be getting better service for the higher fee). 

Fiduciaries need to carefully evaluate the fees and ensure that there is a clear understanding of the services that are being covered.  Sometimes services are “bundled” under one fee, but often fees are charged for individual services.  When comparing prices, it is important to compare like services as well.  Fiduciaries should also periodically review the fees they are paying to ensure that the fees continue to be reasonable and are covering only the services that are needed and used by the plan.

Fiduciaries and plan sponsors cannot afford to take their responsibility lightly.

© 2014 Schneider Downs. All rights-reserved. All content on this site is property of Schneider Downs unless otherwise noted and should not be used without written permission.

This advice is not intended or written to be used for, and it cannot be used for, the purpose of avoiding any federal tax penalties that may be imposed, or for promoting, marketing or recommending to another person, any tax related matter.

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