Participants in three separate 401(k) plans administered by Fidelity, and trusteed by Fidelity Management Trust Company, alleged that Fidelity engaged in prohibitive transactions and breached fiduciary duty by using float income to pay itself trust and recordkeeping fees (above the fees that were authorized by the respective trust agreements). Fidelity moved to dismiss the allegations on the basis that float income is not a plan asset, and that with regard to float income, Fidelity would not be an ERISA fiduciary. The district court agreed that, commensurate with property law, Fidelity owned the accounts that generated the float income, and as such, the income is not a plan asset. Consequently, there was no breach of duty with regard to ERISA. The court also concluded that Fidelity was not an ERISA fiduciary regarding float practices as described, since Fidelity had complied with the plan documents when processing withdrawals from the plans. In so doing, Fidelity fulfilled its fiduciary duties. Fidelity was not acting as a fiduciary when engaging in the float practices. If the plans wished to have Fidelity pay the float to the plan or plan participants, the plan sponsor could negotiate such an arrangement.
The DOL disagrees with this ruling and filed a brief with the 1st U.S. Circuit Court of Appeals stating that Fidelity Trust Management Company, acting as the plans’ trustee, was in fact a fiduciary with respect to float income. More specifically, an ERISA fiduciary engages in prohibited self-dealing and acts disloyally when it retains float income unless it disclosed sufficient information to allow a plan to make an informed decision with regard to the float arrangement. In this case, the plan sponsor and participants were never in a position to negotiate a float agreement because the float practice was never disclosed.
www.planadviser.com; April 4, 2016.