Fidelity Investments has agreed to pay $12 million to settle two lawsuits brought by its own employees that alleged the mutual fund giant charged excessive fees in the company’s own 401(k) plans.
Filed in March of 2013 in U.S. District Court in Boston, one of the suits claimed that Fidelity chose only high-fee fund options, exclusively from the Fidelity family of funds, for its 401(k) menu.
It also claimed that Fidelity added funds to the plan with little or no track record, and that the overall fees per participant for a plan its size were exorbitant.
The plaintiffs claimed total fees for the plan should have amounted to $550,000, when the actual cost to participants was about $15 million.
As part of the settlement, Boston-based Fidelity agreed to make a wider selection of its own funds as well as non-Fidelity funds available to enrollees.
Also, going forward, Fidelity’s Portfolio Advisory Services will be made available to enrollees at no cost.
Auto-enrollment for new qualifying employees will be raised from 3 percent of eligible compensation to 7 percent, and existing enrollees whose contribution rates are below 7 percent will have their contribution rates raised to 7 percent as well.
The plan revisions agreed to in the settlement are to remain in place for at least the next three years.
“Fidelity’s settlement of this case is somewhat surprising as they have typically vigorously defended itself in other excessive fee litigation,” Thomas Clark, an attorney with the Lowenbaum Partnership, wrote in a blog post.
On the other hand, the cost of continuing litigation would have likely been substantially more than the amount agreed to in the settlement, he said.