“Employees of Boston-based Fidelity have sued the financial services giant alleging that it loaded their $15 billion retirement plan with the company’s own mutual funds, saddling it with excessive fees and poor returns.
Filed on Wednesday in Boston federal court, the proposed class action said Fidelity’s alleged mismanagement cost participants in the 401(k) plan more than $100 million a year in returns, compared to returns of comparable plans.
The lawsuit calls out Fidelity for not adequately investigating non-mutual fund alternatives such as collective trusts and separate accounts, pointing out that the firm offers its institutional clients collective trust and separate account products that are similar or identical to mutual funds in the plan.
‘Had an adequate investigation occurred, the fiduciary defendants would have switched the plan’s investments to such vehicles in light of the enormous cost savings as well as the lack of benefit from the mutual fund structure,’ the complaint says.
The defendants are also accused of failing to adequately investigate the availability of lower-cost share classes of several of the mutual funds in the plan. Specifically, the plaintiffs say the defendants in some cases failed to use lower-cost K shares of the Fidelity-branded funds and failed to use lower-cost Z shares of the Fidelity Advisor-branded funds.
For example, the complaint says, the plan used the standard no-load version of the Fidelity Emerging Markets fund, with expenses of 0.96% per year, even though K shares of the Fidelity Emerging Markets fund would have cost participants only 0.81% per year.”