Claims Over Fidelity’s Use of Participant Data Dismissed

A federal judge determined participant data is not considered plan assets, meaning Fidelity was not a fiduciary with regard to the claims.

Fidelity Investments Institutional Operations Co. Inc. (FIIOC), recordkeeper for the Shell Provident Fund 401(k) Plan, has succeeded in getting claims against it dismissed in an Employee Retirement Income Security Act (ERISA) excessive fee lawsuit.

The lawsuit, filed in January 2020, named other Fidelity defendants, including FIIOC’s parent, FMR LLC, and four other FMR LLC subsidiaries. The lawsuit alleged that Fidelity breached its ERISA fiduciary duties and engaged in prohibited transactions by sharing information it maintained about the 401(k) plan participants with various Fidelity affiliates. The lawsuit accused those affiliates of then using the participant data to solicit the purchase of non-plan-related retail financial products and services. According to the plaintiffs, Fidelity derives substantial revenue from the use of this data, through the sale of individual retirement accounts (IRAs), high-interest credit cards, life insurance, banking products, advisory accounts, individual brokerage accounts, options trading accounts, 529 accounts and other retail products and services.

Never miss a story — sign up for PLANSPONSOR newsletters to keep up on the latest retirement plan benefits news.

The plaintiffs allege that the participant data is considered a “plan asset” under ERISA, which makes FIIOC a fiduciary and makes profiting from the data a violation of its fiduciary duties.

Judge Jeffrey Vincent Brown, of the U.S. District Court for the Southern District of Texas, said for that allegation to be true, he would first have to find that participant data is considered a plan asset under ERISA. He looked to the plain text of the statute and said he found ERISA provides that “the term ‘plan assets’ means plan assets as defined by such regulations as the secretary [of Labor] may prescribe.” When looking at the DOL’s regulations defining “plan assets,” Brown noted that it provides that “the plan’s assets include its investment,” but makes no mention of any data.

Looking at a second regulation focusing on “participant contributions” to the plan, he found that it likewise fails to mention data.

“Neither of the promulgated regulations either expressly or by any plain-language interpretation includes participant data as plan assets under ERISA,” Brown wrote in his opinion. He also noted that the view that participant data does not amount to a “plan asset” under ERISA aligns with how other courts have ruled on this question.

Finding that participant data is not a plan asset, Brown also dismissed a claim that Fidelity engaged in ERISA prohibited transactions.

Employers Asked to Take Part in Meeting Americans’ Retirement Income Needs

An economic report discusses Baby Boomers’ lack of retirement readiness and how a new framework for income security is needed as more and more people turn 65.

There’s a wave of people turning 65—the traditional retirement age—but that will peak in 2024, according to the Alliance for Lifetime Income, a nonprofit consumer education organization.

The alliance published an economic report that addresses how underprepared millions of Baby Boomers are for retirement and proposes ideas for a new retirement security framework. Author Jason Fichtner, a senior lecturer at Johns Hopkins University’s Paul H. Nitze School of Advanced International Studies and a research fellow with the Alliance for Lifetime Income and the Retirement Income Institute, suggests that the three-legged stool for retirement income security—pensions, Social Security and personal savings—is no longer sturdy.

Never miss a story — sign up for PLANSPONSOR newsletters to keep up on the latest retirement plan benefits news.

Fichtner says a new framework is needed and calls on employers, financial professionals and policymakers to each take a part in meeting Americans’ retirement income needs.

His framework says employers should ensure their employees have better access through their workplace retirement plans to solutions that generate protected income easily and efficiently. He suggests that employers consider using “trial annuities” as part of workplace retirement plans to mitigate behavioral hurdles to annuitization and encourage adoption of proven protected income strategies. He also says employers should make professional financial advice, education and retirement income planning a key workplace benefit.

Fichtner suggests financial professionals advise clients on income planning, Social Security planning and the need for adequate sources of protected income in retirement to maintain a desired standard of living. He says they should provide clients with more robust retirement income education and resources to encourage optimal Social Security claiming strategies. In addition, he urges financial professionals to consider incorporating annuities into clients’ retirement portfolios as a way for them to generate protected income—especially in today’s low-rate environment.

Policymakers should continue to pursue policy improvements and modernization to promote broad access to efficient protected income solutions for individuals, Fichtner urges. He also encourages them to work with the private sector to ensure that lifetime income disclosure practices continue to improve based on new research-driven framing practices and plan participant behavior.

“The countdown to peak 65 is on and is a wake-up call that the retirement income crisis in America is no longer just looming, it’s here,” says Jean Statler, CEO of the Alliance for Lifetime Income. “Boomers realize they may be living 20, 30 or more years in retirement, which is why it makes sense that their No. 1 concern is outliving their savings. Similarly, our Alliance research shows they’re worried about having enough money to cover their essential monthly expenses, now and throughout retirement. That’s why there’s more urgency now than ever before for collective action to equip Boomers—as well as those that follow—with retirement plans that include protected income to fill the gap that Social Security leaves, which will give them the protection and security they need and want.”

The report, “The Peak 65 Generation: Creating A New Retirement Security Framework,” is available here.

«