Fidelity, Putnam Excessive Fee Cases Moved Forward

U.S. District Judge William Young of the U.S. District Court for the District of Massachusetts has denied motions to dismiss excessive fee lawsuits against Fidelity Management Trust and Putnam Investments. 

In a combined order, Young said that in factually complex Employee Retirement Income Security Act (ERISA) cases such as the ones against Fidelity and Putnam, dismissal is often inappropriate. He added, “At the current stage of litigation, when the Court must draw all reasonable inferences in favor of the non-moving party, the Plaintiffs’ complaints in these two actions allege facts sufficient to state plausible claims.” 

The case against Fidelity involves a  stable  value  fund,  the  Fidelity  Group  Employee  Benefit  Plan  Managed Income Portfolio Commingled Pool (MIP), which, the complaint says, at all relevant times had such low investment returns and high fees that it was an imprudent retirement investment. The poor performance and high fees of the MIP were the result of the intentional actions and omissions of the trustee and fiduciary for the MIP, Fidelity Management Trust Co. The complaint was filed on behalf of all retirement plans that invested in the MIP.

The complaint says that prior to 2009, Fidelity engaged in an imprudent investment strategy for the MIP that caused substantial losses to the fund and accordingly exposed itself and the MIP’s wrap providers to such losses. Faced with a serious decline in the MIP’s market value, and with resulting pressure from the wrap providers—which were exposed to liability in the event of significant MIP fund withdrawals—Fidelity responded by adopting an unduly conservative investment strategy that was contrary to the purposes of stable value fund investing. Specifically, the company allowed the wrap providers to charge excessive fees, as well as charging excessive fees for its own account, the complaint alleges.

Putnam is accused of self-dealing in its own retirement plan for employees to promote that firm’s mutual fund business and maximize profits at the expense of the plan and its participants. The complaint says Putnam loaded the plan exclusively with its own mutual funds, without investigating whether plan participants would be better served by investments managed by unaffiliated companies.

The court’s order denying motions to dismiss in both cases is here.