Fidelity Says It Fully Discloses Fund Fees in 401(k) Plans

(Bloomberg) -- Fidelity Investments says it fully discloses fees that it charges some mutual funds for using the firm’s platform to access retirement plan customers.

The fees and disclosure of them are being probed by the U.S. Labor Department, the Wall Street Journal said Wednesday. They’re also the centerpiece of a Feb. 21 lawsuit against Fidelity by an investor in T-Mobile USA Inc.’s 401(k) plan. It claims the firm conceals so-called infrastructure fees.

“The infrastructure fee has been fully disclosed to 401(k) plans and their sponsors via a disclosure that Fidelity sent to over 20,000 401(k) plans," Fidelity spokesman Vincent Loporchio said in a statement Wednesday. Fidelity denies the allegations in the lawsuit and will vigorously defend itself, he said.

"We make thousands of non-Fidelity mutual funds available to 401(k) plans for which Fidelity acts as recordkeeper, as well as to other Fidelity customers,” he said. “We receive a fee from some of those mutual fund companies to compensate us for maintaining the infrastructure that is needed to make those funds available."

Regulatory Role

The expense was described as an infrastructure fee in a 2017 document, according to the Journal report. Mutual fund firms could either pay the fee of 0.15 percent or pass it on to investors, according to the document. Loporchio said the fee doesn’t vary based on whether a 401(k) plan offers or doesn’t offer a particular fund.

The Labor Department regulates costs and investments offered in workplace savings accounts such as 401(k)s and has sought to crack down on high fees charged by some plans and to increase transparency around revenue-sharing agreements between providers.

A spokesman for the Department of Labor said the agency can neither confirm nor deny the existence of ongoing or prospective investigations.

Fidelity hasn’t been contacted by the department about an investigation or heard from another regulator about it, according to a person familiar with the matter who asked not to be named.

Asset managers have faced pressure on profits as investors flock to low-cost index funds. That’s set off a race to cut fees to retain customers. In August, Fidelity announced the first zero-fee index funds.

Fidelity had $2.4 trillion in assets under management as of Dec. 31.

To contact the reporter on this story: Michael McDonald in Boston at mmcdonald10@bloomberg.net

To contact the editors responsible for this story: Margaret Collins at mcollins45@bloomberg.net, Alan Mirabella, Mary Romano

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