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Fidelity, NEA Targeted in New Fee Lawsuits

Fresh off a major victory in one lawsuit challenging its 401(k) fee practices, Fidelity has been sued yet again. (Click here for a copy of the complaint.) This one was filed on July 23, 2007, in Massachusetts by Columbia Air Services, Inc., the sponsor and administrator of the Columbia Group of Companies 401(k) Retirement Savings Plan. Columbia seeks to act as the named plaintiff for a nationwide class consisting of “all sponsors, administrators and trustees” of defined contribution plans for which Fidelity Management Trust Company serves, or has served, as trustee. The suit alleges that Fidelity breached its fiduciary duties and committed prohibited transactions under ERISA by receiving “kickbacks” from mutual fund companies, in the form of revenue sharing payments. 

The Columbia Air Services case brings to at least three the number of currently pending fee lawsuits that have been filed by – rather than against – plan sponsors. A case filed last November against The Principal, which also purports to be a nationwide ERISA class action on behalf of plan sponsors, has languished in disputes over venue, and was recently transferred to the U.S. District Court for the Southern District of Iowa. Two other cases were filed in recent months on behalf of the Orange County, Florida sheriff’s office 457(b) plan against ING and Nationwide Life Insurance Company. Because of the nature of the plan at issue in those cases, however, the claims do not arise under ERISA.

In June Fidelity prevailed in a fee challenge filed against it and plan sponsor Deere & Co. by Deere plan participants. The U.S. District Court for the District of Wisconsin dismissed that case summarily, ruling that Fidelity and Deere could rely on the fiduciary safe harbor created by Section 404(c) of ERISA. That decision is now being appealed.

Participants in the National Education Association Valuebuilder 403(b) Plan also have entered the fee litigation frenzy in recent weeks. The participants sued the NEA and the plan’s investment providers, Nationwide Life Insurance Company and Security Benefit Life Insurance Company, in the Western District of Washington, alleging that the NEA’s “endorsement” of the investment providers violated various rules under ERISA. This lawsuit is very similar to one filed in New York against the New York State Teachers’ Union and ING earlier this year.

If you would like to keep up with developments on the fee litigation, please register to receive our periodic updates by sending us an email directly. If you have questions about the matters addressed in this article, please contact: Gregory L. Ash, Chair of Spencer Fane’s ERISA Litigation Group