Fidelity Employees suing company for it's 401k plan

[bo_knows]

I find this article pretty hilarious. Vanguard and Fidelity are easily the 2 most recommended brokerages on this site for their low cost mutual funds... and Fidelity itself isn't even offering the low-cost funds to it's own employees!

Thoughts?

Fidelity sued by employees over its own 401(k) plan - Sep. 23, 2013

 

[Bestwifeever]

Poor babies, only a 100 percent company match on 7 percent. And only 150 options available including low-cost index funds.

All of the more than 150 investment options available in the Fidelity plan were offered by Fidelity or a company subsidiary, according to the suit. And, at the end of 2010, nearly 85% of the plan's assets were held in actively managed Fidelity mutual funds, which tend to have higher fees than passively managed index funds.

Fidelity has filed to dismiss the lawsuit, citing that its employees have a wide variety of investments to choose from -- including low-cost index funds.

 

[bo_knows]

Poor babies, only a 100 percent company match on 7 percent. And only 150 options available including low-cost index funds.

Exactly. I've read the article 3 times now, and I can't figure out what grounds they are actually suing on.

 

[pb4uski]

Probably some contingency lawyer salivating over a deep pockets target figuring that they would settle and pay him/her a nice fee.

 

[MichaelB]

Is this the one? http://fidelity401klawsuit.com/FidelityInitialComplaint.pdf

This Complaint presents a case of fiduciary self-dealing in violation of the Employee Retirement Income Securities Act (“ERISA”), 29 U.S.C. §§ 1001, et seq.

Not sure of the merits, but folks here routinely criticize 401(k) plans for having abusive fees. If the complaint does have merit, it wouldn't be the first time Fidelity has been accused of self-dealing. I recall back around '02 when they were caught paying high trading fees (charged to their funds), then negotiating, and keeping, the rebates.

 

[steelyman]

Is this the one? http://fidelity401klawsuit.com/FidelityInitialComplaint.pdf
Not sure of the merits, but folks here routinely criticize 401(k) plans for having abusive fees. If the complaint does have merit, it wouldn't be the first time Fidelity has been accused of self-dealing. I recall back around '02 when they were caught paying high trading fees (charged to their funds), then negotiating, and keeping, the rebates.

I recall that too. Another fund company I had then was caught allowing off-hour trades. I think that kind of stuff helped ETFs gain traction.

 

[jerome len]

We have a Fidelity 401k platform for our employees and, overall, it works well. We have a good match, not as good as Fidelity's however.

Here's the rub........Fidelity has very few cheap index funds compared to Vanguard....so, Fidelity includes additional low cost Vanguard index funds in our 401k plan that aren't available in the FIDO list of index funds. Fidelity employees haven't been allowed to add low cost Vanguard funds to their FIDO choices. Should they? They think so and thus the fight between FIDO management and their employees.

 

[Hopeful]

Well my ING 403b has low cost Vanguard index funds, but ING must feel they don't make enough money on them because the tack on a 0.32% yearly fee on any Vanguard holdings.

 

[bUU]

Part of the problem is that the government plays fast and loose with their stated intentions to protect employees. ERISA is unforgivably vague with regard to standards for 401(k) plan offerings, and if you wrote down the effective standard it would be something akin to "shut up and be happy it isn't crappier". There are all these measures employers have available to them to make it look like they're offering a benefit that is of some reasonably-assumed value, when the reality is that they degrade the value of the benefit significantly through compromises that they impose to address their cost preferences. (This is true of retirement plans, but also healthcare plans, etc.) There's nothing wrong with a company wanting to keep costs low, but there is simply way too much deception and misdirection being used, fostering righteous indignation and that surreptitious devaluation. While causing indignation isn't a crime, it is something worthy of repudiation, unfortunately our society doesn't provide a substantive means of discrediting an entity that engages in some transgression against reasonable sensibility.

 

[BTravlin]

Yeah, with a 100% match on the first 7% plus periodic contributions to profit sharing I'd be doing the happy rather than suing.

 

[bUU]

Let's not get carried away. I don't know anyone who works at Fidelity (except for people for whom I'm a customer and therefore not someone it is appropriate to share their feelings about their employer), but I do know of folks who work for a neighboring financial services firm, State Street Bank. Their pay is almost insultingly low for the skills they're expecting, they treat their employees like crap, and generally earn their reputation for being among the worst companies to work for in the city. If they are attracting unsuspecting transplants to the city with promises of a favorable profit sharing plan to make up for an anemic compensation model, and then pull stunts like only offering almost-exclusively ER offering, then they deserve action taken against them.

 

[growing_older]

The suit isn't about the matching or the funds. It's about the practice of depositing contributions in an interest bearing account for a while before adding them to participants account. and using the interest earned for Fidelity instead of giving it to the participants.

The features of the plan, high match, lots of choices, seem better than many plans. I'd love to have a plan like that where I work.

 

[ikubak]

Maybe they are mad because they can't get Vanguard funds in their 401k.

 

[jIMOh]

Here are a few data points- the article mentions lawsuits by other companies 401k offerings too, including Wells Fargo.

Most people pay different expense ratios in 401k mutual funds than stated in prospectus, and it takes a bit of education to learn the additional fees.

Well my ING 403b has low cost Vanguard index funds, but ING must feel they don't make enough money on them because the tack on a 0.32% yearly fee on any Vanguard holdings.

Where are those additional fees disclosed to the participants?

For example, I have Vanguard funds in my 401k (and use them), but I also know transamerica is getting a cut somewhere, not sure how much or from who (some employers eat this cost, most do not).

 

[Hopeful]

Where are those additional fees disclosed to the participants?

For example, I have Vanguard funds in my 401k (and use them), but I also know transamerica is getting a cut somewhere, not sure how much or from who (some employers eat this cost, most do not).

The Vanguard funds have the appropriate Vanguard expenses listed, say 0.1%, but then there is a footnote at the bottom of the fund listing that ING charges an additional 0.32% annually for all Vanguard funds held. I unfortunately did not notice the footnote until this year, which is my own fault.

 

[teejayevans]

The Vanguard funds have the appropriate Vanguard expenses listed, say 0.1%, but then there is a footnote at the bottom of the fund listing that ING charges an additional 0.32% annually for all Vanguard funds held. I unfortunately did not notice the footnote until this year, which is my own fault.

It may not be your fault, a new law requires that ALL fees/charges are documented (I think it went into effect this year), before they never had to.

 

[growing_older]

It may not be your fault, a new law requires that ALL fees/charges are documented (I think it went into effect this year), before they never had to.

So with the new law, they have to at least disclose the fees in a footnote somewhere, which is better than previously when they didn't have to disclose at all. But they seem to be allowed to be as devious and obscure as they want. My 401k plan disclosed their fees by referencing another document, which when I obtained that contained a reference to an online page that is not otherwise linked. There I found a confusing, but seemingly accurate, description of the fees. I'm pretty sure I'm the only person in my company to find this disclosure, as I've spoken to both CFO and President who negotiated the plan, and neither were aware of them.

 

[teejayevans]

So with the new law, they have to at least disclose the fees in a footnote somewhere, which is better than previously when they didn't have to disclose at all. But they seem to be allowed to be as devious and obscure as they want. My 401k plan disclosed their fees by referencing another document, which when I obtained that contained a reference to an online page that is not otherwise linked. There I found a confusing, but seemingly accurate, description of the fees. I'm pretty sure I'm the only person in my company to find this disclosure, as I've spoken to both CFO and President who negotiated the plan, and neither were aware of them.

The plan document is probably relatively stable, where fees can change anytime, so it doesn't surprise me the fees were documented online. You probably could have called your HR/plan admin and saved you a few mouse clicks and it maybe even been more entertaining
The fees are a real problem for smaller companies, big megacorps should have low fees, my megacorp uses institutional funds and no additional fees, and it's administrated by Fido, so it's interesting their employees don't get as good as deal as their big customers

 

[jerome len]

Wall Street Journal reported in their weekend edition that Fidelity one of best places to work based on contributions they make to 401k plan........then they get sued by employees.......I much prefer Vanguard index funds but.......I don't think I'd be complaining if I worked for FIDO.

 

[samclem]

Wall Street Journal reported in their weekend edition that Fidelity one of best places to work based on contributions they make to 401k plan........then they get sued by employees.......I much prefer Vanguard index funds but.......I don't think I'd be complaining if I worked for FIDO.

Yes, the match is pretty generous. FIDO could open the door to the lower-cost funds, but if they also reduced the match, the employees could find themselves worse off. After all, the employees only have to stay in the funds they choose until they leave their jobs, then they can roll their 401K funds to an IRA and put the money in a lower-cost FIDO fund (or Vanguard funds, etc).

For PR purposes, I think FIDO would probably want to allow the employees into the lower-cost funds. But: FIDO manages a lot of 401K plans for many employers. When marketing their packages to these employers, I'm sure FIDO trots out the package they offer their own employees as an example/template. If the rock-bottom ER funds are in FIDO's own 401K plan, there's a good chance many other companies will feel increased pressure to add them to their own menu. If they aren't there, the FIDO reps can make a good case that these other companies don't need them in their own plans. That helps FIDO's bottom line (as does encouraging companies to have a generous match). So, giving a "good deal" to FIDO's employees (offering MFs with rock-bottom ERs) may cost the company a lot more than it would first appear. Offering FIDO employees slightly more expensive funds and a generous match is a "wash" for them and results in more $$ for FIDO. Anyway, that's my theory.

I wonder what employees of Edward Jones are offered in their 401Ks.