Class Action Claims Shell Oil Company, Fidelity Mismanaged 401(k) Plan [UPDATE]

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A group of participants in the Shell Provident Fund 401(k) Plan claims in a proposed class action that Shell Oil Company, the plan’s administrators and trustees and Fidelity, the plan’s recordkeeper, have caused plan members to lose millions of dollars by failing to act in their best interests. The suit argues that Shell retained in the plan a number of poorly performing funds, neglected to use the plan’s size as leverage for lower administrative fees and allowed Fidelity to use plan participants’ data to market lucrative non-plan financial products.

The 81-page lawsuit begins by explaining that fiduciaries such as the defendants who exercise control over a retirement plan’s assets must “act prudently and for the exclusive benefit of participants in the plan.” Despite this requirement, Shell used what the suit calls an “obsolete, imprudent structure” for the plan’s investment menu. While the investment menu allegedly included over 300 options, most were Fidelity proprietary mutual funds, according to the lawsuit. The case claims Shell loaded the plan with Fidelity mutual funds “without any initial screening process” and then failed to monitor the funds to ensure that they were performing well, a recipe the plaintiffs say shows a lack of caution.

“Assembling a haphazard lineup of over 300 options, most that were proprietary to Fidelity—and shifting to participants the burden to screen those options for prudence—reflects an imprudent investment selection and monitoring process,” the complaint alleges.

The lawsuit goes on to claim that the Shell defendants retained this “unmonitored fund window” structure despite learning that other similarly situated “mega plans” had switched to a lineup of only “13 to 16 investments spanning each investment style and appropriate asset class consistent with plan sponsor fiduciary practices.” According to the case, Shell’s failure to monitor the plan’s options and remove poorly performing funds has caused participants to lose over $158.1 million that their assets could have earned “in an alternative, prudent lineup.”

Diverging further from the practices utilized by other large plans, Shell, the case says, neglected to use the sheer size of its 401(k) to negotiate lower administrative fees for plan participants, an easy option that the plaintiffs claim would have saved significant money.

“Much lower administrative expenses are readily available for plans with a large number of participants, such as the Plan,” the suit argues, estimating that participants have lost over $31.7 million due to “unreasonable recordkeeping fees and lost investment opportunity.”

Perhaps worse, the lawsuit claims that Shell has allowed the Fidelity defendants—which include Fidelity Investments Institutional Operations Company, Inc.; FMR LLC; Fidelity Brokerage Services LLC; Fidelity Personal and Workplace Advisors LLC; Fidelity Investments Life Insurance Company; and Fidelity Personal Trust Company FSB—to use plan members’ “highly confidential” data to “aggressively market” non-plan financial products to plan members themselves.

Through its relationship with Shell, Fidelity, the case says, had access to plan members’ social security numbers, contact information, age, marital status, financial assets, investment choices, and “years of investment history,” all of which allowed the company to “easily identify” individuals who were nearing “triggering events,” such as retirement, and would be interested in investing in one of Fidelity’s non-plan financial products. According to the suit, Fidelity then used this data—“a valuable Plan asset”—to generate “enormous profits” by “cross-selling” retail products and services to plan members.

The lawsuit proposes to cover a class of those who were participants and beneficiaries of the Shell Provident Fund 401(k) Plan between January 21, 2014 and the date of judgment in the case, with a proposed subclass of those who also utilized the plan’s managed account services.

The full lawsuit can be read below.