An order this week in a lawsuit against Shell Oil and Fidelity provides record keepers with more certainty that 401(k) participant data are not plan assets.
On Tuesday, a judge in the Southern District of Texas, Galveston Division, granted Fidelity’s motion to dismiss the claims against it, finding that data about participants do not fit the definition of plan assets.
A group of plaintiffs sued Shell and Fidelity early last year, alleging that the companies violated the Employee Retirement Income Security Act in connection with personally identifying information that was used to cross-sell participants on Fidelity products and services. The lawsuit also includes separate allegations against Shell regarding investment and administrative expenses within the plan. A motion to dismiss claims against Shell was denied.
The plaintiffs in the lawsuit “failed to cite any court that has ever held that releasing or allowing someone to use confidential information constitutes a breach of fiduciary duty under ERISA,” this week’s order read. Two prior cases, one from 2004 and another from 2010, support the idea that participant data are not considered plan assets, the judge wrote.
More recently, a court rejected similar claims in a case filed against Northwestern University, the order noted. That case, like the one against Shell and Fidelity, was brought by law firm Schlichter Bogard & Denton, which several years ago filed a raft of cases against elite colleges and universities that sponsor 403(b) plans. A component of some of those cases was record keepers' use of participant data to cross-sell services.
One such case against Vanderbilt University ended two years ago with a $14.5 million settlement. Part of the agreement required Vanderbilt to prohibit Fidelity from using participant data to market or sell products outside of the retirement plan. Fidelity was not a party in that lawsuit.
Record keepers have warned that viewing participant data as a plan asset could have negative consequences for 401(k) plans, as it could impede their ability to contact workers about financial wellness services.
Lawyer Jerome Schlichter, who has long contended that participant data should be protected from marketing, did not immediately respond to a request for comment about whether his firm planned to challenge the order to dismiss the claims against Fidelity.
Last week, law firm Capozzi Adler filed a case against Icon Clinical Research, alleging that its 401(k) charges excessive investment management and administrative expenses.
The plan, which represented more than $500 million at the end of 2019, charged record-keeping fees of 69 basis points that year, leading participants to pay “at least 60% more in total plan costs” than those in comparable plans, according to the complaint filed last Friday.
Investment management costs were also higher than average, in part because the plan did not include the lowest-cost share classes available, the plaintiffs stated.
“There is no good-faith explanation for utilizing high-cost share classes when lower-cost share classes are available for the exact same investment,” the complaint read.
The case was filed in U.S. District Court in the Eastern District of Pennsylvania.
Icon Clinical Research did not respond to a request for comment.
Participants in Wesco Distribution’s 401(k) plan last week brought a lawsuit against the company, alleging fiduciary breaches over administrative fees.
The roughly $750 million plan included record-keeping fees of as much as $194 per participant in recent years, or nearly five times the competitive rate, the plaintiffs stated.
The higher administrative costs within the plan are partly due to revenue sharing paid from mutual fund fees to the record keeper, Wells Fargo, the complaint noted. Although Wells Fargo charges participants directly for administrative services, it has received nearly as much compensation from revenue sharing that was not credited back to the plan, the plaintiffs stated. Wells Fargo is not named as a party in the case.
Relatedly, the plan’s investment menu does not include the lowest-cost share classes of mutual funds, according to the complaint filed last Friday in U.S. District Court in the Western District of Pennsylvania.
Wesco did not respond to a request for comment.
The law firms Chimicles Schwartz Kriner & Donaldson-Smith and Franklin D. Azar & Associates represent the plaintiffs.
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