Hardly a secret—lawyers are picking apart the 401(k) space, and gunning for anything that seems even remotely untoward. The latest? The practice of “the float,” or earning interest on participant contributions during the time between the salary deferral and making the investment.
HP Inc., United Airlines Inc. and Fidelity Management Trust Co. have all been sued by 401(k) plan participants challenging Fidelity’s alleged float practices, which diverts “billions of dollars of plan assets for its own benefit.”
Bloomberg BNA reports that the lawsuit, filed Aug. 18 in the U.S. District Court for the Northern District of California, targets Fidelity’s float practice and alleges that the firm earned interest on overnight investment of $1.13 billion in contributions to the HP plan and $255 million to the United Airlines plan.
“Plan sponsors HP and United Airlines allegedly breached their fiduciary duties under the Employee Retirement Income Security Act by failing to adequately investigate the procedures used by Fidelity in connection with their plans’ trading activity and distribution of benefits, the complaint said, according to the news service.
“We believe the plaintiffs’ case is without merit and intend to defend against it vigorously,” Fidelity spokesman Steve Austin told Bloomberg BNA Aug. 19 via e-mail.
As Bloomberg notes, the lawsuit comes more than a month after the U.S. Court of Appeals for the First Circuit held that Fidelity’s practice of keeping “float” income earned off the 401(k) plans it manages didn’t violate ERISA.
The Eighth Circuit has also ruled that participants in Fidelity-managed plans couldn’t maintain fiduciary breach claims against the company.
“The First and Eighth circuits’ decisions are at odds with the Department of Labor’s position in this matter,” Bloomberg concludes. “The DOL has said that Fidelity’s practice of retaining float income generated from its administration of the plans, distributing such income to non-plan entities and its failure to disclose the existence of such income constitutes self-dealing in violation of ERISA.”