Background

In In re Fidelity ERISA Float Litigation, Case No. 13-10222 (D. Mass. Mar. 11, 2015), the U.S. District Court for the District of Massachusetts granted a motion to dismiss claims under ERISA challenging a 401(k) plan service provider’s practice with respect to its handling of redemptions from client plan investment options.

The plaintiffs, six plan participants and one plan administrator, filed four separate lawsuits in 2013, which were subsequently consolidated. They purported to assert claims on behalf of a class of thousands of plans serviced by the defendants, affiliated entities that provided services to the plans and/or its investments. The consolidated complaint alleged that the defendants breached ERISA fiduciary duties and engaged in prohibited transactions because they invested money in the process of being redeemed from the plans’ investment options—known as “float”—on an overnight basis, but did not distribute the income from those overnight investments directly to the plans.   

In granting the motion to dismiss, the court held that the plaintiffs failed to plausibly allege that income earned on float is a plan asset under ERISA. The court followed an earlier decision by the U.S. Court of Appeals for the Eighth Circuit in Tussey et al. v. ABB, Inc. et al., 746 F.3d 327 (8th Cir. 2014), in which the appellate court rejected similar claims against the same provider. The district court also held that, even if float were an ERISA plan asset, the provider was not acting as a fiduciary to the plans when it invested the float, and, thus, the conduct that the plaintiffs challenged was not subject to ERISA. The court also recognized that the provider’s float practices complied with the terms of its service contracts with the plans and with the governing plan documents.

Goodwin Procter represented the defendants in this matter.