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Journal > Fidelity Investments Retirement Plan Service Agreement

Fidelity Investments Retirement Plan Service Agreement

September 20th, 2021

The District Court`s ruling is favourable to planning accountants and administrative service providers. This is another in a winning streak for record holders who have successfully argued that the act of compiling an investment options platform from which plan sponsors can select planned investments is not a fiduciary act. First, the applicants argued that Fidelity was a trustee because its trial and maintenance of infrastructure charges had allowed it to “fix” or “determine” the amount of compensation it had received from plan customers. The claimants theorized that Fidelity unilaterally increased its own compensation for planned clients by requiring investment funds to pay infrastructure charges after a plan entered into a contract with Fidelity, with investment funds re-listing fees to plans by increasing fees at the fund level. The District Court found that Fidelity had not exercised unilateral discretion over its own compensation for two reasons. Fidelity first had to negotiate with fund companies the amount of any infrastructure charges. Even if Fidelity had succeeded in securing the payment of infrastructure charges from investment funds, the applicants would not have been able to disclose that those costs were necessarily passed on to clients with defined contribution plans. As Fidelity was unable to unilaterally increase its compensation by negotiating the infrastructure charges, the court found that Fidelity had not obtained trust status by influencing its compensation. Second, the claimants asserted that Fidelity was an agent based on the use of “omnibus accounts.” Fidelity creates “omnibus accounts” in which investment fund units are held on behalf of scheduled clients and divides omnibus accounts into “accumulation units” (to track the performance of each investment fund). The claimants argued that both the pool accounts and the accumulation units were classified as ERISA`s “planned assets” and that Fidelity acted as trustee in “managing” those assets in the management of the accounts. The Tribunal rejected this allegation of fiduciary status on the basis that Fidelity had not exercised discretion over the “Omnibus accounts”.

The Tribunal held that, with respect to the selected investments, Fidelity merely followed the instructions of the sponsors and plan participants and exercised no discretion in the selection or diversion of the planned investments. The Court held that it was not necessary to obtain the status of “planned assets” of pooled accounts or accumulation units in order to conclude that Fidelity was not fiduciary in the context of the pooled accounts. Third, the claimants argued that Fidelity was fiduciary because of its control over the funds made available in FundsNetwork and thus over the funds made available to the plan`s clients. Here, the court ruled that Fidelity`s decisions to add or remove funds from its FundsNetwork platform did not turn the company into an investment trustee. Referring to a series of recent decisions involving 401(k) platform providers, the Court ruled that control of an investment platform from which sponsors could choose was not fiduciary. (“The choice of funds available on the FundsNetwork platform does not turn Fidelity into a trustee without more.” Next, the court considered whether Fidelity exercised control over the establishment of the plan client by exercising its discretion to replace or eliminate funds already on a client`s list, as the applicants claim. In that regard, the General Court held that the service agreements concluded by Fidelity are essential. The Tribunal found that the service agreements clearly excluded Fidelity`s responsibility for selecting or advising on the development of the plan and allowed Fidelity to remove or replace the investment funds only after the prior announcement of the amendment. .

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