Fidelity Class Action Lawsuit Claims 401(k) Kickbacks Violate ERISA

This article is not legal advice. It is presented
for informational purposes only.

A recent Fidelity class action lawsuit claims that T-Mobile 401(k) plans were mismanaged in violation of ERISA.

T-Mobile employee and plaintiff Andre Wong claims that Fidelity made mutual funds pay kickbacks in order to continue as an investment option for the plan. These kickbacks were reportedly part of a “pay-to-play scheme” by Fidelity which Wong argues violates the Employee Retirement Income Security Act (ERISA).

Fidelity is an investment company that provides 401(k) options through employers. Fidelity reportedly provides a variety of services for T-Mobile such as compliance, record keeping, allocating contributions, distributing proceeds, loan processing, asset transfer, and more. Plan participants pay fees for these services, but the kickbacks allegedly don’t relate to any of the services that Fidelity provides to the cellular company.

However, according to Wong, Fidelity may be taking advantage of their well-meaning customers by leveraging unfair kickbacks against mutual funds.

“While the kickbacks are internally described by Fidelity as ‘infrastructure payments’ and reimbursement for expenses incurred in providing services for, to, or on behalf of the mutual funds, and deceptively characterized as such to plans and their participants to the extent obliquely referenced by Fidelity as ‘mutual fund supermarket fees,’ the amounts of these kickbacks bear absolutely no relationship to the cost or value of any such services and, instead, plainly are a replacement for declining amount of revenue sharing payments received by Fidelity,” Wong argues in his Fidelity class action lawsuit.

Wong accuses Fidelity of misleading individuals like himself about the kickbacks and failing to disclose them. In addition, Fidelity allegedly actively prevents mutual funds from disclosing the kickbacks. Wong argues that this is a fraudulent attempt to protect themselves from liability under ERISA.

“Fidelity literally has lined its pockets with at least hundreds of millions of dollars in secret payments by and through self-dealing, other prohibited transactions and breaches of its fiduciary duties,” Wong claims.

Wong seeks to represent a Class of employee pension benefit plans covered by ERISA.

This is not the first time that Fidelity has made the news for misdeeds related to their 401(k) plans. In October 2018, Investment News reported that Fidelity faced another lawsuit claiming that the investment company loaded their 401(k) plan with proprietary mutual funds that benefited the firm and other affiliated entities. The additional of proprietary mutual funds allegedly resulted in yearly losses of $100 million.

A similar class action lawsuit was filed against the company five years ago and was settled in 2014 for $12 million. Other financial services under the Fidelity brand have paid millions to resolve claims of false advertising and employment law violations.

According to Investment News, Fidelity spokesman Michael Aalto denied these claims and stated that the company “strongly disputes the allegations in this complaint.”

“We provide an excellent retirement plan to our employees, and we plan to vigorously defend against this lawsuit,” Aalto said.

The Fidelity Class Action Lawsuit is Wong v. FMR LLC, et al., Case No. 1:19-cv-10335, in the U.S. District Court for the District of Massachusetts.

Join a Free Fidelity 401(k) Fees Class Action Lawsuit Investigation

If you invested in a 401(k) or another fund through Fidelity or in another fund that uses the Fidelity platform, you may qualify to join this Fidelity class action lawsuit investigation.

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