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Float Income Ruled not to be a Plan Asset

float incomeA federal court ruled that the use of float income by Fidelity did not violate investors rights under ERISA in the case of Kelley v. Fidelity Management Trust Company because it was not a plan asset following similar rulings. But experts believe the door has been left open for other lawsuits in the future under slightly different circumstances.

The issue at hand is the practice of retirement plan providers like Fidelity earning interest income overnight after a plan participant has requested a distribution from their 401k plan. Investors sued challenging the practice alleging that the income was a plan asset – the DOL chimed in claiming that the practice was illegal even if the interest was not a plan asset.

One legal expert noted, “…that since the plan fiduciaries apparently allowed Fidelity to retain this float, it somehow ceased to become a plan asset.” So it’s possible that a plan could create provisions that give the plan an ownership interest in the float income but another expert questioned whether the individual investors even had legal standing to sue.

Stephen Rosenberg of the Wagner Law Group suggested that the case seem to be, “..blessing a certain float structure as one that will not give rise, simply on its own, to fiduciary liability under ERISA…[but] invites the smarter minds in the plaintiffs’ class action bar to put on their thinking caps and look for a different theory to pursue recovery where float income is at play.”

So look for more cases on float income especially if the plan documents claim that the interest is a plan asset although according to one expert, but not addressed by the court, it’s questionable whether that plan or the participants have standing to bring the lawsuit in the first place.

Fred Barstein

Fred Barstein

Founder & Editor-in-Chief at 401kTV | TRAU | TPSU
Fred Barstein is the Founder & Editor-in-Chief of 401kTV. Fred is also the Founder and CEO of The Retirement Advisor University (TRAU), a collaboration with UCLA Anderson School of Management Executive Education and The Plan Sponsor University (TPSU).Mr. Barstein was also Founder and Editor-in-Chief of NAPA Net.
Fred Barstein

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