Fidelity Cleared of Excessive Fee Violation

In the case of Danza v. Fidelity Management Trust Co. (2013 WL 3872118), the 3rd U.S. Circuit Court of Appeals found that the U.S. District Court for the District of New Jersey was correct in dismissing the suit which alleged Fidelity violated various provisions of the Employee Retirement Income Security Act (ERISA) by charging participants of Danza’s retirement plan excessive service fees for reviewing Domestic Relations Orders (DROs).

Danza’s employer A&P contracted with Fidelity to provide recordkeeping and administrative services for the plan. A schedule of the plan listed fees that Fidelity would charge for its services, including fixed fees for DRO services to be paid by plan participants.

Citing Renfro v. Unisys Corporation, the court determined that “at the point Fidelity was negotiating its fees with A&P, it was not a fiduciary of the plan and owed no duty to plan participants to defray reasonable expenses of administering the plan.” It also found at the time Fidelity and A&P signed the trust agreement “Fidelity was not then a fiduciary and therefore could not be considered a co-fiduciary under Section 405 [of ERISA].”

The 3rd Circuit said Danza needed to prove that a prohibited transaction occurred between the plan and a party of interest, with parties of interest including fiduciaries, employers, employees, service providers and certain stockholders. The court pointed out that while Fidelity is currently a party of interest as a service provider of the plan, it was not at the time the trust agreement was signed.

Finally, the court found that at the time Danza was charged the DRO fee, “the fee structure was set and Fidelity lacked discretion to change it” and therefore was not in violation of Section 406(b).

The full text of the opinion can be found here.