Four class actions were consolidated in the U.S. District Court for the District of Massachusetts challenging whether float income earned on monies pending a transaction was a “plan asset.” In re Fidelity ERISA Float Income, No. 13-10222, 2015 WL 1061497 (D. Mass. March 11, 2015). Plaintiffs argued that if float was a plan asset, then Fidelity breached its fiduciary duties and committed a prohibited transaction by keeping this float income for its own benefit. Applying ordinary notions of property rights, the District Court held that float income was not a plan asset.
When Fidelity received a withdrawal request from a mutual fund, it would move the funds to a redemption bank account or to an interest bearing disbursement bank account, depending on whether the participant elected disbursement by electronic transfer or by check. Fidelity allocated the float income to mutual funds or to offset bank expenses. Plaintiffs admitted that the assets of the mutual fund are not plan assets, but argued that the plans’ ownership of shares in the mutual funds made the plans the “beneficial” owners of the funds transferred to handle the withdrawal requests from these funds. Applying ordinary notions of property rights, the district court disagreed. Nothing in the plan documents changed mutual fund assets into plan assets simply because they were transferred to an account to be disbursed to participants. The court noted that this could have been contracted for in the plan documents but was not, and distinguished this from a case in which disbursements had been made contrary to the plan documents. The court also noted that Fidelity’s fiduciary obligations were discharged once it made disbursements in accordance with the plan documents.
The court called into question Department of Labor guidance that suggested a trustee’s use of float income is a prohibited transaction unless the trustee discloses and negotiates retention of the float income with the plan fiduciary. The court noted that this guidance failed to address the antecedent question of whether the funds in the disbursement accounts were in fact plan assets, and this guidance also predated three recent circuit court decisions that held these types of funds are not plan assets.
This case follows a line of recent court rulings applying ordinary notions of property rights to analyze whether disbursement accounts, and whether income earned on those disbursement accounts, are “plan assets.” Unless the plan documents impose a property interest on these accounts, the courts are concluding that these accounts are not “plan assets.”