Fidelity has changed the way it manages its 401(k) plan. That took some convincing — it had been sued by 29 current and former employees on behalf of 50,000 of their peers over conflicts of interest in its plan. But the settlement they reached had something for both parties; and for employees, that “something” could be substantial indeed, RIABiz reports.
It could have been a potent case — the plaintiffs had alleged that Fidelity had violated ERISA in running its plan, which is worth $10 billion. But the case never made it to court — the parties settled before that happened. The company agreed to pay $12 million, and in return did not have to admit any wrongdoing. The money goes to employees who participated in the plan between March 20, 2007 and July 10, 2014; the amount each of the employees who participated in the suit gets is based on the size of their accounts.
Fidelity also agreed to the following:
• to allow participants to choose third-party mutual funds
• for three years, it will not collect the 12b-1 fee in third-party funds held in its plan as revenue sharing
• to raise the default employee contribution rate from 3% to 7%
When participants choose mutual funds other than those Fidelity offers, Fidelity loses asset management fees; the 12b-1 fees will go to Fidelity employees who participate in the plan; and the increase in the default means that the company match Fidelity makes will also increase.
But while the settlement will cost Fidelity, there may be a silver lining too. 401(k)helpcenter’s Rick Meigs told RIABiz that the settlement could enhance Fidelity’s image as an employer, and also will improve its 401(k) plan. And the Pension Resource Institute’s Jason Roberts called the default increase “a best practice” that he hopes others will emulate.
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