In another class action lawsuit, in what has become a string of 401k and 403b legal cases brought by plan participants, HP, United Airlines and their record keeper, Fidelity, have been sued over the issue of who owns the float income. The plaintiffs in Burgess v. HP, Inc., allege that retaining the income earned overnight before contributions are made by Fidelity is a breach of fiduciary responsibility by plan sponsors who have not adequately investigated these procedures. The case was filed in the 9th Circuit US Court of Appeals which appears to be more friendly to plaintiff lawsuits.
Just last month ago, another 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. Other courts have held that retaining float income is not a violation of ERISA possibly setting up a split which could lead to a ruling by the US Supreme Court.
The DOL also appears to agree with plaintiffs in the recently filed float income case asserting that not distributing float income back to the plan or the participants constitutes self-dealing under ERISA.
At issue is the practice of providers earning interest overnight before contributions are invested and whether these assets either are property of the plan or should be distributed for the benefit of the participants.
Many 401k and 403b plan sponsors are not even aware of the practice of providers generating overnight float income so their plan documents do not include it as a plan asset. But more troubling with the Burgess case is that, if successful, plan sponsors could be held liable for the practice of providers retaining float income.
