# Moitoso v. FMR LLC

> District Court, D. Massachusetts · March 27, 2020

URL: https://www.frixlaw.com/law-library/cases/10198525

## Case

- **Court:** District Court, D. Massachusetts
- **Decided:** March 27, 2020
- **Opinion:** 100trialcourt
- **Cited by:** 0 later opinions in the Frix Law Library

## Citator (automated)

- No negative treatment found by the automated citator. That is not the same as a confirmation that the case is good law; read the citing cases.
- Full citator and citing cases: https://www.frixlaw.com/law-library/cases/10198525

## How later opinions describe it (automated extraction)

- explaining when Auer deference applies and noting that “it often doesn’t”
- explaining that an employer must administer a plan in its fiduciary capacity by providing all contractual benefits to eligible employees, but that the determination about which employees were eligible was instead a business decision allowed by the plan
- noting that such a release does not relieve a fiduciary of its responsibilities, but “merely settles a dispute that the fiduciary did not fulfill its responsibility or duty on a given occasion”

## Opinion text

UNITED STATES DISTRICT COURT
DISTRICT OF MASSACHUSETTS

___________________________________
)
KEVIN MOITOSO, TIM LEWIS, )
MARY LEE TORLINE, and SHERYL )
ARNDT, individually and as )
representatives of a class )
of similarly situated persons, )
and on behalf of the )
FIDELITY RETIREMENT SAVINGS PLAN, )
)
Plaintiffs, )
)
v. ) CIVIL ACTION
) NO. 18-12122-WGY
FMR LLC, FMR LLC FUNDED )
BENEFITS INVESTMENT COMMITTEE, )
FMR LLC RETIREMENT COMMITTEE, )
FIDELITY MANAGEMENT & RESEARCH )
COMPANY, FMR CO., INC., and )
FIDELITY INVESTMENTS INSTITUTIONAL )
OPERATIONS COMPANY, INC., )
)
Defendants. )
___________________________________)

YOUNG, D.J. March 27, 2020

MEMORANDUM & ORDER
I. INTRODUCTION
Kevin Moitoso, Tim Lewis, Mary Lee Torline, and Sheryl
Arndt (collectively, the “Plaintiffs”) are former employees of
FMR LLC or its affiliates and beneficiaries of the Fidelity
Employers’ defined contribution 401(k) retirement plan, the
Fidelity Retirement Savings Plan (the “Plan”). Pls.’ Fourth Am.
Compl., (“Compl.”) ¶¶ 1, 18-21, 46, ECF No. 77. They have
brought this lawsuit pursuant to 29 U.S.C. §§ 1132(a)(2)-(3) on
behalf of a certified class of former Fidelity employees, and on
behalf of the Plan itself, asserting breaches of fiduciary duty
in violation of the Employee Retirement Income Security Act of
1974 (“ERISA”), as amended, 29 U.S.C. § 1001 et seq.. Compl. ¶¶

15, 127-162; Stipulation and Order Regarding Class Certification
(“Class Cert.”), ECF No. 83
The Plaintiffs sued two groups of defendants (collectively,
the “Defendants” or “Fidelity”). Compl. ¶ 2. The first group
consists of the Plan’s named fiduciaries: FMR LLC, FMR LLC’s
Board of Directors, FMR LLC Funded Benefits Investment Committee
(“FBIC”), and FMR LLC Retirement Committee (“Retirement
Committee) (collectively, the “Plan Fiduciaries”). Id. ¶¶ 2,
22-28. The second group consists of the plan’s sponsor, FMR
LLC, and the non-fiduciaries Fidelity Management & Research
Company (“FMR”), FMR Co., Inc. (“FMRC”), and Fidelity
Investments Institutional Operations Company, Inc. (“FIIOC”)

(collectively, “Fidelity Entities”).1 Id. ¶¶ 2, 29-34.
The Plaintiffs first bring claims against the Plan
Fiduciaries for breach of the fiduciary duties of loyalty and
prudence in violation of ERISA § 404, 29 U.S.C. § 1104(a)(1)(A)-

1 The Defendants collectively will be referred to as
“Fidelity,” but will be referred to by their specific names when
this Court is analyzing the actions of a specific member of the
group.
(B), (D) (count I). Compl. ¶¶ 127-134. The Plaintiffs further
accused the Plan Fiduciaries of breaching the duty of
impartiality, in violation of 29 U.S.C. § 1104(a) (count II),
but later withdrew that claim without prejudice. Compl. ¶¶ 135-
141; Pls.’ Opp’n Defs.’ Mot. Summ. J. (“Pls.’ Opp’n”) 10, ECF

No. 154. The Plaintiffs also accuse the Plan Fiduciaries of
engaging in prohibited transactions with a fiduciary in
violation of 29 U.S.C. § 1106(b) (count III). Compl. ¶¶ 142-
147. The Plaintiffs charge FMR LLC with failure to monitor the
Plan Fiduciaries (count IV), id. ¶¶ 148-154, and seek from all
the Fidelity Entities equitable disgorgement of profits (count
V), id. ¶¶ 155-162. See 29 U.S.C. §§ 1109(a), 1132(a)(2)-(3).
Fidelity asserts as an affirmative defense that all of the
Plaintiffs’ charges are not only barred by a prior court-
approved class action settlement but are also time-barred.
Defs.’ Supp. Mem. Summ. J. (“Defs.’ Mem.”) 9-12, ECF No. 140.
Additionally, Fidelity argues that it has not violated any

fiduciary duties as matter of law. Id. at 13-20. The two
parties agreed to a case stated hearing on some (but not all)
issues, which this Court conducted on November 20, 2019.2 Joint
Letter from Pls.’ and Def.’s Regarding Nov. 7, 2019 Sum. J.

2 Through the case stated procedure, the parties waive trial
on a specified set of issues and the Court may render judgment
based on the undisputed facts in the record. See TLT Constr.
Corp. v. RI, Inc., 484 F.3d 130, 135 n.6 (1st Cir. 2007).
Proc. (“Case Stated Letter”), ECF No. 209; Electronic Clerk’s
notes, ECF No. 221.
Having heard the arguments of both sides, the Court now
rules that, on count I, Fidelity has breached its duty of
prudence by failing to monitor its mutual fund investments and

by failing to monitor recordkeeping expenses. Fidelity,
however, has not breached its duty of prudence by failing to
investigate alternatives to those mutual funds because a prudent
fiduciary would not be required to conduct those specific
investigations. Fidelity additionally has not breached its duty
of loyalty. On count III, Fidelity has not engaged in
prohibited transactions because its dealings with proprietary
products were no less favorable to the Plan as a whole than to
other shareholders of Fidelity funds.
Counts IV and V are both derivative of counts I and III.
Regarding count IV, this Court rules that FMR LLC is liable for
the breach of its duty to monitor the Plan Fiduciaries with

regards to their ongoing handling of the mutual fund investments
and recordkeeping expenses. On count V, the Plaintiffs may
recover from Fidelity Entities for any profits traceable to the
aforementioned breach of the fiduciary duty to monitor. At
trial, the Plaintiffs will bear the burden of proving the extent
of any losses, and Fidelity will bear the burden of proving that
any losses to the Plan were not caused by the lack of
monitoring. See Brotherston v. Putnam Invs., LLC, 907 F.3d 17,
35 (1st Cir. 2018).
A. Procedural History
The Plaintiffs first filed this suit On October 10, 2018,
Class Action Compl. 1, ECF No. 1, amending the complaint three

times. Am. Compl., ECF No. 31; Second Am. Compl., ECF No. 37;
Third Am. Compl., ECF No. 56. On May 2, 2019, the Plaintiffs
filed their fourth and final amended complaint. See generally
Compl. On September 6, 2019, the Plaintiffs filed a motion for
partial summary judgment, and the Defendants then cross-moved
for summary judgment. Pls.’ Mot. Partial Summ. J., ECF No. 135;
Defs.’ Mot. Summ. J., ECF No. 139. Prior to considering the
summary judgment motions, this Court entered a memorandum and
order denying the Plaintiffs’ request for a jury trial but
providing for the selection of an advisory jury. See Moitoso v.
FMR LLC, 410 F. Supp. 3d 320 (D. Mass. 2019). This Court then
heard oral arguments on summary judgment on November 7, 2019,

taking all matters under advisement, and setting a case stated
hearing for November 20, 2019. Electronic Clerk’s Notes, ECF
No. 218. At the November 20 hearing, this Court also took all
the matters under advisement. ECF No. 221; Tr. Case Stated Hr’g
(“Tr. Case Stated Hr’g”), ECF No. 222.
B. The Procedural Framework of this Decision: The Case
Stated
While the summary judgment motions were sub judice, the
parties proposed that the Court resolve some -- but not all --
of the issues as a case stated. Case Stated Letter. This case
stated hearing was based on stipulations by both parties that
there were no material facts in dispute on any issue except the
Defendants’ statute of limitations defense. Case Stated Letter
1. “Case stated hearings provide an efficacious procedural
alternative to cross motions for summary judgment.” Sawyer v.
United States, 76 F. Supp. 3d 353, 356 (D. Mass. 2015) (citing
Continental Grain Co. v. Puerto Rico Mar. Shipping Auth., 972

F.2d 426, 429 n.7 (1st Cir. 1992)). In a case stated decision
“the parties waive trial and present the case to the court on
the undisputed facts in the pre-trial record. The court is then
entitled to ‘engage in a certain amount of factfinding,
including the drawing of inferences.’” TLT Constr. Corp. v. RI,
Inc., 484 F.3d 130, 135 n.6 (1st Cir. 2007) (quoting United
Paperworkers Int’l Union Local 14 v. International Paper Co., 64
F.3d 28, 31 (1st Cir. 1995)).
At the case stated hearing this Court announced that it
would base its decision on the undisputed statements of facts
provided by both parties. Tr. Case Stated Hr’g 4; Pls.’ Local
R. 56.1 Statement Undisputed Material Facts (“Pls.’ SOF”), ECF
No. 137; Statement Undisputed Material Facts Supp. Defs.’ Mot.
Summ J. (“Defs.’ SOF”), ECF No. 141; Pls.’ Resp. Defs.’ SOF
Statement Material Facts Pursuant Local R. 56.1 (“Pls.’ Resp.
SOF”), ECF No. 153; Defs.’ Resp. Pls.’ SOF, (“Defs.’ Resp.
SOF”), ECF No. 167.

It is worth remarking that, in this Court’s experience,
case stated hearings usually involve but a modicum of fact
finding -- nothing more than the drawing of reasonable
inferences. Here, by converting the summary judgment record to
their case stated presentation the parties have provided the
Court with a plethora of affidavits characterizing the facts.
See D. Brock Hornby, The Business of U.S. District Courts, 10
Green Bag 2D 453, 462 (2007) (noting that much of the work of
the modern day judge consists of poring over affidavits and
other “facts” submitted by lawyers instead of holding trials).
This Court has independently drawn its own inferences from the
stipulated facts.

C. Factual Background
This case concerns the nature of the fiduciary duties that
Fidelity owes to the Plan, along with the current and former
employees that are beneficiaries of this Plan.
The Plan is a defined contribution plan within the meaning
of 29 U.S.C. § 1002(34) and qualified under 26 U.S.C. § 401 (a
“401(k) plan”). Pls.’ SOF ¶ 2; Compl. ¶ 46. FMR LLC is the
sponsor of the Plan, pursuant to 29 U.S.C. § 1002(16)(B). Pls.’
SOF ¶ 1. In defined contribution plans, fiduciaries curate
diversified investment options in which plan participants can
invest. Compl. ¶ 47; see 29 U.S.C § 1104(a)(1)(C). The Plan
allowed participants to invest in Fidelity funds, non-Fidelity

funds available through a self-directed brokerage account, and
two monitored options, the Portfolio Advisory Service at Work
account (“PAS-W”) and the Fidelity Freedom K Funds. See Decl.
Dave Rosenberg (“Rosenberg Decl.”), Ex. 56, Your Summary Plan
Description FID000137, ECF No. 142-56.
Fidelity’s Plan included more than 58,000 participants and
assets under management of approximately $17,000,000,000 as of
the end of 2016. Pls.’ SOF ¶ 4; Compl. ¶ 51. All members of
the class action are former Fidelity employees who were invested
in at least one fund available through the Plan. Id. ¶ 119
(describing precise parameters of certified class).
The current litigation is not the first class action

concerning this particular Plan. In 2013, a class of the Plan’s
beneficiaries alleged that Fidelity breached its fiduciary duty
of loyalty by offering only Fidelity mutual funds on the Plan,
failing to offer cheaper alternatives, and committing prohibited
transactions under ERISA. See id. ¶ 35 (citing Bilewicz v. FMR
LLC, et al., Class Action Compl., Civ. A. No. 13-10636, ECF No.
1 (D. Mass. 2013) (Casper, J.) (“Bilewicz”)). Plan participants
then filed a second lawsuit on January 7, 2014, alleging that
Fidelity had violated its fiduciary duties by paying excessive
recordkeeping fees. Defs.’ SOF ¶¶ 8-9 (citing Yeaw v. FMR LLC,
et al, Class Action Compl., Civ. A. No. 14-10035, ECF No. 1 (D.
Mass. 2014) (Casper, J.) (“Yeaw”)).

In October 2014, Judge Casper approved a settlement
agreement between Fidelity and the plaintiffs, consolidated
under Bilewicz. Order Approve Settlement Class Action,
Bilewicz, ECF No. 72. This settlement agreement required the
defendants to pay $12,000,000 into a common fund and rewrite the
plan document to provide more benefits and protections for Plan
members. See generally Bilewicz, Mem. Supp. Mot. Order, Ex. 1,
Class Action Settlement Agreement (“Bilewicz Settlement
Agreement” or “Settlement”), ECF No. 53-1.
All named plaintiffs in the current case were members of
the Bilewicz settlement class. Defs.’ SOF ¶ 12. All named
Defendants in this case were also defendants in the Bilewicz

litigation. Id. ¶ 29. As part of the Settlement, the Bilewicz
plaintiffs agreed to release the defendants from “any and all
claims, debts, demands, rights or causes of action, suits,
matters, and issue or liabilities whatsoever . . . including
both known Claims and Unknown Claims” in any way related to the
claims at hand in that litigation. Id. ¶ 30 (emphases deleted)
(citing Bilewicz Settlement Agreement § 3.3).
Following these settlement negotiations Fidelity announced
the First Amendment to the Plan Document, effective July 29,
2014 (“First Amendment”). Pls.’ SOF ¶ 9. Under this First
Amendment, Fidelity identified two “designated investment
alternatives” (“DIAs”), the Fidelity Freedom target date funds

(“Freedom Funds”), and the PAS-W, that would undergo full
fiduciary monitoring. Defs.’ SOF ¶¶ 55-57, 93. It also offered
beneficiaries of the Plan the option to invest in an array of
other Fidelity and non-Fidelity funds by specifically selecting
them through the Plan’s “open architecture” or “supermarket” of
fund offerings. Id. ¶ 53. Fidelity funds were available on
NetBenefits, the online platform previously used by Fidelity,
while participants could access the non-Fidelity funds by
creating an account on the separate, self-directed BrokerageLink
platform. Pls.’ SOF ¶¶ 10-11. The majority of the Plan assets,
at the time of filing, were invested in one of the non-DIA
Fidelity funds available through NetBenefits. Id. ¶ 16.

To address the issue of excessive recordkeeping costs, the
Settlement also required an update to the Plan’s existing
revenue credit system to create mandatory revenue-sharing with
Plan participants (“Revenue Credits”). Defs.’ SOF ¶ 121. This
Revenue Credit matches or exceeds the management fees and
revenue generated by Fidelity pursuant to its role administering
the various funds, which includes the cost of recordkeeping, and
is paid to the Plan at the end of each year. Id. ¶¶ 122, 126.
The Plan’s fiduciaries have said they did not monitor these
administrative costs, on the grounds that all administrative
expenses paid to Fidelity would be credited back to the Plan
through the Revenue Credits. Id. ¶ 128.

Former employees who had left Fidelity, though still
members of the Plan, do not receive any part of the Revenue
Credit, unless they were employed for a portion of a Plan year.
Pls.’ SOF ¶ 37. Before the implementation of the Revenue
Credit, Fidelity had provided a discretionary profit-sharing
contribution to the Plan account of each individual equivalent
to 10% of their compensation. Id. ¶ 35. After the Revenue
Credit’s implementation, Fidelity adopted a practice of flexing
the amount of discretionary profit-sharing based on the amount
returned to each account through the Revenue Credit, so the
total of the (mandatory) Revenue Credit and (discretionary)
profit-sharing remained at 10% of compensation per year. Id.

This leads the Plaintiffs to call the implementation of the
Revenue Credit an “accounting gimmick.” Id. ¶ 36 (quoting Decl.
Mark Thomson (“Thomson Decl.”), Ex. 18, Expert Report Marcia S.
Wagner (“Wagner Report”) ¶ 88, ECF No. 138-20).
II. ANALYSIS
As both parties have stipulated to the underlying facts in
this case, their conflict concerns the boundaries of the
fiduciary duty that Fidelity owes to the members of the Plan.
Fidelity believes that this Court need not reach any substantive
issues of fiduciary duty. It contends that the Plaintiffs are
essentially re-litigating the Bilewicz Settlement Agreement in
arguing that many of the Plan’s features (such as the Revenue

Credit) are themselves breaches of fiduciary duty, and that
their claims ought thus be denied under the principle of res
judicata. Defs.’ Mem. 5-8. Fidelity also points to the release
and covenant not to sue in the Settlement as covering all the
named Plaintiffs, asking that this Court find the Plaintiffs’
claims are covered by the language of the release. Id.3
The Plaintiffs primarily point to three places where they
allege Fidelity has breached its duties of prudence and loyalty.
First, the Plaintiffs contend that the Defendants breached their
duty to monitor funds in the plan outside the two DIAs. Compl.
¶¶ 101-103. The Plaintiffs argue this lack of monitoring
constitutes a violation of fiduciary duties because, for various

3 Fidelity further argues that both counts I and III are
time-barred because the Plaintiffs would have been required to
sue within three years of discovering the breach of fiduciary
duty. Defs.’ Mem. 9-12 (citing 29 U.S.C. § 1113(2)). The
statute of limitations under ERISA is based on an actual
knowledge standard, see generally Intel Corp. Inv. Policy Comm.
v. Sulyma, 140 S. Ct. 768, 776-77 (2020), and because the
parties did not stipulate to the underlying facts required to
make this actual-knowledge determination prior to the case
stated hearing, this Court will not address this statute of
limitation issue at this time. See Case Stated Letter.
reasons, the choice to include these specific funds was
imprudent. Id. ¶¶ 65-72, 76-103. Second, the Plaintiffs argue
that Fidelity had a duty to investigate alternatives to mutual
funds including stable value funds, collective trusts, and
separate accounts. Id. ¶¶ 68-71, 95-100. Third, the Plaintiffs

argue the Plan Fiduciaries had a duty to monitor and control
administrative expenses, and that the Revenue Credit system does
not adequately release them from this responsibility. Id. ¶¶
73-75, 104-116. On the whole, the Plaintiffs argue, the
Defendants inappropriately placed the interests of Fidelity over
the interests of Plan participants. Id. ¶ 131.
The Plaintiffs additionally assert that payment by the Plan
to FMR LLC for administrative expenses constitutes a prohibited
transaction with Fiduciary, in violation of 29 U.S.C. §
1106(b)(3). Id. ¶ 143. While Prohibited Transaction Exemption
77-3 (“PTE 77-3”), 42 Fed. Reg. 18734, 18735 (Apr. 8, 1977),
would provide the Defendants a safe harbor were the Plan treated

no less favorably than any other non-proprietary option, the
Plaintiffs dismiss PTE 77-3 as a defense for two reasons: (1)
they claim that the Revenue Credit is essentially illusory, so
FMR LLC is still receiving net compensation from administrative
expenses; and (2) the class members did not receive the Revenue
Credits because they are former employees. Pls.' Mem. Supp.
Partial Summ. J., (“Pls.’ Mem.”) 18, ECF No. 136.
Derivative of the claimed breach of fiduciary duties, count
IV is viable against FMR LLC only were this Court to find the
Plan Fiduciaries to have committed a breach. Compl. ¶¶ 148-152.
Similarly, count V asks for the disgorgement of profits that
Fidelity has accrued pursuant to its breaches of duty and

applies only to the extend this Court finds such a breach of
duty. Id. ¶¶ 155-158.
The Court addresses the issues in this order.
A. Prior Court-Approved Class Action Settlement and Res
Judicata
Fidelity argues that all claims in the complaint are barred
by the prior approved class action settlement and res judicata.
Defs.’ Mem. 5-6. The Plaintiffs submit that the settlement and
res judicata do not bar their claims because their claims arise
from breaches of Fidelity’s continual duty of prudence and
loyalty after the signing of the settlement. Pls.’ Opp’n 10-15.
The Court agrees.

“‘Under the federal law of res judicata, a final judgment
on the merits of an action precludes the parties or their
privies from relitigating claims that were raised or could have
been raised in that action.’” Breneman v. United States ex rel.
FAA, 381 F.3d 33, 38 (1st Cir. 2004) (quoting Apparel Art Int’l,
Inc. v. Amertex Enters. Ltd., 48 F.3d 576, 583 (1st Cir. 1995)).
A claim of res judicata must establish the following elements:
“‘(1) a final judgment on the merits in an earlier proceeding,
(2) sufficient identicality between the causes of action
asserted in the earlier and later suits, and (3) sufficient
identicality between the parties in the two actions.’” Id.
(quoting Banco Santander de P.R. v. Lopez-Stubbe (In re Colonial

Mortg. Bankers Corp.), 324 F.3d 12, 16 (1st Cir. 2003)).
ERISA provides that, unless covered by specified
exceptions, “any provision in an agreement or instrument which
purports to relieve a fiduciary from responsibility or liability
for any responsibility, obligation, or duty under this part
shall be void as against public policy.” 29 U.S.C. § 1110(a).
In the interest of encouraging settlement of claims, courts have
consistently held that section 1110(a) does not prevent parties
from negotiating a release from existing fiduciary violations.
See Leavitt v. Northwestern Bell Tel. Co., 921 F.2d 160, 161-62
(8th Cir. 1990) (noting that such a release does not relieve a
fiduciary of its responsibilities, but “merely settles a dispute

that the fiduciary did not fulfill its responsibility or duty on
a given occasion”); see also Howell v. Motorola, Inc., 633 F.3d
552, 561 (7th Cir. 2011); Taylor v. Visteon Corp., 149 F. App’x
422, 427 (6th Cir. 2005). Courts have held, however, that such
releases cannot protect a fiduciary from suit when the cause of
action arose after the signing of the release. See Ruppert v.
Alliant Energy Cash Balance Pension Plan, 255 F.R.D. 628, 635
(W.D. Wis. 2009) (“[T]o the extent plaintiffs’ releases could be
construed as releasing defendant from this ERISA suit, the
agreement would be unenforceable because agreements that waive
future violations of ERISA are unenforceable . . . .”). An
attempt to release future ERISA violations would not be valid

because it would be an attempt to relieve the fiduciary of
responsibility. See Taylor, 149 F. App’x at 426; Srein v. Soft
Drink Workers Union, Local 812, 93 F.3d 1088, 1096 (2d Cir.
1996) (citing Leavitt, 921 F. 2d at 161-62).
Fidelity points to two provisions in the original Bilewicz
Settlement Agreement that it argues bar the Plaintiffs’ claims.
Defs.’ Mem 3-5. First, section 3.3 of the Settlement defines
the scope of claims released by the Settlement. Id.; Bilewicz
Settlement Agreement § 3.3. The provision covers “both known
Claims and Unknown Claims,” including those “in any way arising
out of, relating to, based on, or in connection with: the
structure, management, monitoring, servicing, administration,

size and/or expenses of the Plan” as well as “any assertions
regarding revenue sharing.” Id. (emphases in original).
Additionally, the Settlement includes a release barring
litigation over any features of the Plan included in section
7.3, the section describing the steps Fidelity would take to
meet the demands of the Settlement. Id. §§ 3.3, 7.3. According
to Fidelity, the recordkeeping, breach of fiduciary duty, and
prohibited transaction claims are barred because they are all
related to the system implemented by section 7.3. Defs.’ Mem.
7-8. Fidelity additionally argues that the release should apply
because the Plaintiffs’ claims do not arise from a change in
events after the Settlement, and because those claims previously

could have been litigated. Id. at 9.
The Plaintiffs argue, and the Court agrees, that the
holding from Tibble v. Edison Int’l suggests that there has been
a sufficient “change in circumstances” justifying this new suit,
because fiduciaries have a continual duty to monitor
investments. Pls.’ Opp’n 12 (quoting 135 S. Ct. 1823, 1828
(2015)). In outlining this continual duty to monitor, the
Supreme Court held that “the trustee must ‘systematic[ally]
conside[r] all the investments of the trust at regular
intervals’ to ensure that they are appropriate.” Tibble, 135 S.
Ct. at 1828 (alterations in original) (quoting Amy Morris Hess,
George Gleason Bogert & George Taylor Bogert, The Law of Trusts

and Trustees § 684, at 147-48 (3d ed. 2009) (“Bogert 3d”)).
This continuing duty, combined with the case law interpreting
section 1110(a), must be given effect here. Fidelity could not
contract away this future duty to monitor by signing the
Bilewicz release.
This is not to say that the release is ineffective. The
Plaintiffs have had to limit their class only to those
participants whose claims arose after November 17, 2014, the
effective date of the release. See Class Cert. ¶ 1. The
Plaintiffs are also limited to claims concerning Fidelity’s
continuing duties, rather than those pre-dating the Settlement
or arising from the Settlement.

Fidelity’s arguments based on res judicata are similarly
unavailing. The present case and the Bilewicz case do not arise
from a “common nucleus of operative facts.” See Haag v. United
States, 589 F.3d 43, 46 (1st Cir. 2009) (quoting Gonzalez v.
Banco Cent. Corp., 27 F.3d 751, 755 (1st Cir. 1994)).
Fidelity’s duty of continual monitoring, combined with its
failure to monitor, means that the claims in the case at hand do
not arise out of the “same transaction or series of connected
transactions.” Id. (quoting Kale v. Combined Ins. Co., 924 F.2d
1161, 1166 (1st Cir. 1991)).
In conclusion, Fidelity’s claims based on the continual
duty to monitor are not barred by the Bilewicz settlement or res

judicata.
B. Legal Standard
1. ERISA Fiduciary Duties
Retirement plan trustees are fiduciaries who owe duties of
loyalty and prudence to participants in their plan. 29 U.S.C. §
1104(a)(1)(A); Bunch v. W.R. Grace & Co. (Bunch I), 532 F. Supp.
2d 283, 287-88 (D. Mass. 2008), aff’d, 555 F.3d 1 (1st Cir.
2009). The statute defining these fiduciary duties provides in
part:
[A] fiduciary shall discharge his duties with respect to
a plan solely in the interest of the participants and
beneficiaries and--

(A) for the exclusive purpose of

(i) providing benefits to participants and
their beneficiaries; and

(ii) defraying reasonable expenses of
administering the plan;

(B) with the care, skill, prudence, and diligence
under the circumstances then prevailing that
a prudent man acting in a like capacity and
familiar with such matters would use in the
conduct of an enterprise of a like character
and with like aims.

29 U.S.C. § 1104(a)(1). A court considers “the merits of [the]
transaction” and “the thoroughness of the investigation into the
merits of [the] transaction” when determining if a fiduciary has
breached the duties of loyalty or prudence. Bunch I, 532 F.
Supp. 2d at 288 (quoting Howard v. Shay, 100 F.3d 1484, 1488
(9th Cir. 1996)). These duties of loyalty and prudence are
among “the highest known to the law.” Braden v. Wal–Mart
Stores, Inc., 588 F.3d 585, 598 (8th Cir. 2009) (quoting Donovan
v. Bierwirth, 680 F.2d 263, 272 n.8 (2d Cir. 1982)).
a. Duty of Loyalty
The duty of loyalty requires a fiduciary to act solely in
the interest of plan participants and beneficiaries, and with
the exclusive purpose of providing them benefits. 29 U.S.C. §
1104(a); see Vander Luitgaren v. Sun Life Assurance Co. of Can.,
765 F.3d 59, 65 (1st Cir. 2014); Bunch I, 532 F. Supp. 2d at
291-92; Glass Dimensions, Inc. ex rel. Glass Dimensions, Inc.
Profit Sharing Plan & Tr. v. State St. Bank & Tr. Co., 931 F.

Supp. 2d 296, 305 (D. Mass. 2013) (Tauro, J.). The contours of
these duties are “derived from the common law of trusts.”
Tibble, 135 S. Ct. at 1828 (quoting Central States, Se. & Sw.
Areas Pension Fund v. Central Transp., Inc., 472 U.S. 559, 570
(1985)).
To prevail on a breach of duty of loyalty claim, a
plaintiff must show, by a preponderance of evidence, that
defendants failed to act in the best interest of the
participants and beneficiaries. Bunch I, 532 F. Supp. 2d at 291
(quoting 29 U.S.C. § 1104(a)(1)(A)). In making this inquiry,
the court considers the “totality of circumstances.” See Bunch
v. W.R. Grace & Co. (Bunch II), 555 F.3d 1, 7 (1st Cir. 2009)

(citing DiFelice v. U.S. Airways, Inc., 497 F.3d 410, 418 (4th
Cir. 2007)). It is not enough for a plaintiff to identify a
potential conflict of interest from the defendant’s investment
in its own proprietary funds, as a plan sponsor may invest all
plan assets with a single company, see Hecker v. Deere & Co.,
556 F.3d 575, 586 (7th Cir. 2009), and may invest in funds it
controls as long as it abides with the specific exemptions
governing self-dealing. See Dupree v. Prudential Ins. Co. of
Am., Civ. A. No. 99-8337, 2007 U.S. Dist. LEXIS 57857, at *144-
145 (S.D. Fl. Aug. 7, 2007) (noting the existence of exemptions
to ERISA § 408(b), 29 U.S.C. § 1108(b)(2), the statute barring
self-dealing). Instead, the Court must take into account the

fiduciary’s subjective motivation in making a decision for the
plan. See Perez v. First Bankers Tr. Servs., Inc., 210 F. Supp.
3d 518, 534 (S.D.N.Y. 2016) (“[T]he duty of loyalty is grounded
in the motivation driving a fiduciary’s conduct, and liability
will not lie where a fiduciary’s decisions were motivated by
what is best for the [plan], even if those decisions also
incidentally benefit the fiduciary.”).
b. Duty of Prudence
The duty of prudence requires that a fiduciary act with the
“care, skill, prudence, and diligence under the circumstances
then prevailing” equivalent to those of a prudent man in the
same position. 29 U.S.C. § 1104(a). There is no exact,

“uniform checklist” that a prudent fiduciary must follow. Tatum
v. RJR Pension Inv. Comm., 761 F.3d 346, 358 (4th Cir. 2014).
Generally, “ERISA requires fiduciaries to employ ‘appropriate
methods to investigate the merits of the investment and to
structure the investment’ as well as to ‘engage[] in a reasoned
decision[-]making process, consistent with that of a ‘prudent
man acting in [a] like capacity.’” Id. (alterations in
original) (quoting DiFelice, 497 F.3d at 420). The key question
when examining an alleged breach of the duty of prudence is
whether the fiduciary “took into account all relevant
information in performing its fiduciary duty under ERISA.”
Bunch I, 532 F. Supp. 2d at 288. The duty of prudence is

continuous and includes the requirement that fiduciaries
periodically ensure existing investments are sound, in addition
to future investments. See Tibble, 135 S. Ct. at 1828-29.
2. Prohibited Transaction
ERISA bars a fiduciary from causing a plan to engage in
prohibited transactions, which include providing services or
transferring assets between the fiduciary and the plan. 29
U.S.C. § 1106(b). There is an exception to these prohibited
transactions under PTE 77-3, which renders the prohibition
inapplicable to employee benefits plans investing in in-house
mutual funds under certain conditions. See Brotherston, 907
F.3d at 27. The relevant condition is as follows:

All other dealings between the plan and the investment
company, the investment adviser or principal underwriter
for the investment company, or any affiliated person of
such investment adviser or principal underwriter, are on
a basis no less favorable to the plan than such dealings
are with other shareholders of the investment company.

42 Fed. Reg. at 18,735.
3. Causes of Action
A plaintiff alleging a breach of fiduciary duties may sue
for losses sustained by the plan pursuant to two different
provisions of 29 U.S.C. § 1132, the statute granting a private
right of action for ERISA violations. Under section 1132(a)(2),

a Plaintiff may sue for violations of ERISA § 409, 29 U.S.C. §
1109, which allows for the recovery from a fiduciary of “losses
to the plan” resulting from a fiduciary duty’s breach, along
with “such other equitable or remedial relief as the court may
deem appropriate.” 29 U.S.C. § 1109(a). A plaintiff may also
sue for relief pursuant to 29 U.S.C. § 1132(a)(3), which allows
a court to provide relief when plaintiffs do not have another
section 1132 cause of action. See Varity Corp. v. Howe, 516
U.S. 489, 515 (1996). Section 1132(a)(3)(B) specifically allows
for equitable relief. When a complaint is filed against a
fiduciary, monetary relief available under section 1132(a)(2) is
comparable to the equitable remedy of surcharge, while section

1132(a)(3) authorizes other equitable remedies, including
disgorgement of profits. See Moitoso, 410 F. Supp. 3d at 328
(discussing nature of remedies under section 1109(a)).
Additionally, section 1132(a)(3) allows the equitable remedy of
surcharge when a fiduciary breaches its duties, CIGNA Corp. v.
Amara, 563 U.S. 421, 442 (2011), though the remedy of surcharge
is not available against a non-fiduciary. Mertens v. Hewitt
Assocs., 508 U.S. 248, 256 (1993).
B. Duty to Monitor Funds other than the Designated
Alternative Investments
1. Duty to Monitor Self-Directed Brokerage Accounts

The Plaintiffs contend that the Plan Fiduciaries had a duty
to monitor investments other than the two DIAs (the PAS-W and
Freedom K Funds) as an aspect of their duty of prudence. Pls.’
Mem. 9-10. Fiduciaries have a general duty under ERISA
continuously to monitor investments and remove those that are
imprudent, which is a duty separate from their requirement
prudently to select those investments. Tibble, 135 S. Ct. at
1829. Even when a plan document dictates the investment scheme,
fiduciaries may follow that document only insofar as it is
consistent with their duties under ERISA, as “the duty of
prudence trumps the instructions of a plan document.” Fifth
Third Bancorp v. Dudenhoeffer, 134 S. Ct. 2459, 2468 (2014)

(citing 29 U.S.C. §§ 1104(1)(D), 1110(a)). DIAs are among the
class of funds that must be monitored. See 29 C.F.R. §
2550.404a-5(a), (c), (d). The definition of a DIA excludes,
however, “‘brokerage windows,’ ‘self-directed brokerage
accounts,’ or similar plan arrangements that enable participants
and beneficiaries to select investments beyond those designated
by the plan.” Id. § 2550.404a-5(h)(4).
Fidelity points out that there is no duty to monitor funds
offered in a manner “similar” to a brokerage window. Defs.’
Mem. 13 (citing 29 C.F.R. § 2550.404a-5(h)(4)); see also Wagner
Report ¶ 60. Thus, it argues that its proprietary plans are the
equivalent of a self-directed brokerage account. Defs.’ Mem. 14

(citing Request for Information Regarding Standards for
Brokerage Windows in Participant-Directed Individual Account
Plans, 79 Fed. Reg. 49,469, 49,471 (Aug. 24, 2014); Defs.’ SOF ¶
60). In so arguing, Fidelity notes that the Plaintiffs are not
alleging a breach of fiduciary duty with regards to the non-
proprietary funds offered through the Plan’s self-directed
brokerage accounts. Id. at 13.
The Plaintiffs’ argument is in two parts. First, they
argue that Fidelity had a continuing duty to ensure that all
Plan investments were prudent, and that this duty is unchanged
by 29 C.F.R. § 2550.404a-5(h)(4). Pls.’ Opp’n 3-4. They also
say that Fidelity ought not be able to take advantage of the

“brokerage window” safe harbor even if it does exist, because
the alternative funds were effectively still “available in the
plan.” Id. at 4 (citing Pls.’ SOF ¶¶ 10-11).
Some courts have extended the duty to monitor to funds
available through brokerage windows while others have not,
though this Court has not found a judicial opinion actually
analyzing the issue. Compare Troudt v. Oracle Corp., Civ. A.
No. 16-00175-REB-SKC, 2019 U.S. Dist. LEXIS 33017, at *29 n.18
(D. Colo. Mar. 1, 2019) (noting, without comment, that the
recordkeeper (who happened to be Fidelity) did not monitor
investments available through a brokerage window), with Larson
v. Allina Health Sys., 350 F. Supp. 3d 780, 799 (D. Minn. 2018)

(examining the mix of funds available through a brokerage window
to determine whether the sponsor could face liability).
Multiple regulations explicitly tie the duty to monitor to the
existence of DIAs. See 29 C.F.R. § 2550.404c-1(d)(2)(iv)
(explaining that when a participant in a 404(c) plan exercises
independent control over an asset, the fiduciary of the plan
cannot be held responsible for losses, but that this “does not
serve to relieve a fiduciary from its duty to prudently select
and monitor any service provider or designated investment
alternative offered under the plan”); 29 C.F.R. § 2550.404a-5(f)
(noting that fiduciaries have a duty to “monitor . . .
designated investment alternatives offered under the plan”).4

Just because these regulations apply to DIAs, however, does not

4 The definition of “Designated Investment Alternative,”
though it originated in a regulation governing disclosure, see
29 C.F.R. § 2550.404a-5(h)(4), is a term of art now used
elsewhere throughout the ERISA landscape. Cf. 29 C.F.R. §
2550.408g–1(c)(1) (“The term ‘designated investment option’ has
the same meaning as the term ‘designated investment alternative’
as defined in 29 CFR 2550.404a–5(h).”).
preclude them from applying also to other forms of investments,
such as self-directed brokerage accounts.
Regulators have declined to weigh in on this question. In
2012 the Department of Labor (the “Department”) issued a Field
Assistance Bulletin indicating that an affirmative obligation to

monitor could arise when a large number of plan participants
partake in investments other than DIAs, see John J. Canary,
Department of Labor, Field Assistance Bulletin No. 2012-02 Q&A
30 (May 7, 2012), https://www.dol.gov/agencies/ebsa/employers-
and-advisers/guidance/field-assistance-bulletins/2012-02, but
then withdrew this guidance and replaced it with new guidance
that did not include this duty to monitor. See John J. Canary,
Department of Labor, Field Assistance Bulletin No. 2012-02R(1)
Q&A 39 (July 30, 2012),
https://www.dol.gov/agencies/ebsa/employers-and-
advisers/guidance/field-assistance-bulletins/2012-02r. This
Court sees the withdrawal of guidance as the Department

essentially declining to take a position on the issue, though
other communications indicate that it may not consider such a
duty to exist. See 79 Fed. Reg. at 49,472 (asking, in a request
for information, “[h]ow do plan fiduciaries monitor investments
made through their plan’s brokerage window, if at all?”)
(emphasis added).
This Court need not defer to these statements,5 but in the
absence of other regulations explicitly imposing such a duty, it
is hesitant to state unequivocally that there either is, or is
not, a fiduciary responsibility to monitor self-directed
brokerage accounts.

The goals of ERISA include protecting plan participants by
controlling the administration of plan benefits, including
through the imposition of stringent fiduciary standards. New
York State Conf. of Blue Cross & Blue Shield Plans v. Travelers
Ins. Co., 514 U.S. 645, 651 (1995). At the same time, “courts
have bristled at paternalistic theories that suggest ERISA
forbids plan sponsors to allow participants to make their own
choices.” Short v. Brown Univ. 320 F. Supp. 3d 363, 369 (D.
R.I. 2018) (quoting Sacerdote v. New York Univ., No. 16-6284
(KBF), 2017 U.S. Dist. LEXIS 137115, at *36 (S.D.N.Y. Aug. 25,
2017)).
Brokerage windows can provide plan participants significant

freedom by allowing them to select from a menu of hundreds or

5 Courts are required to defer to agency interpretations of
their own regulations under Auer v. Robbins, 519 U.S. 452
(1997). Here, however, there is no explicit agency
interpretation. Instead, there is a resounding absence of
interpretation created by the second Department Bulletin, and an
implication drawn from the phrasing of a request for
interpretation. These do not rise to level of agency
interpretation to which deference is owed. See Kisor v. Wilkie,
139 S. Ct. 2400, 2415-18 (2018) (explaining when Auer deference
applies and noting that “it often doesn’t”).
thousands of investments, making it perhaps unrealistic for a
fiduciary to monitor them all. See Wagner Report ¶ 60. On the
other hand, the same regulation that defines “Designated
Alternative Investments,” 29 C.F.R. 2550.404a-5(h)(4), also
includes the following language: “Nothing herein is intended to

relieve a fiduciary from its duty to prudently select and
monitor providers of services to the plan . . . .” 29 C.F.R.
2550.404a-5(f). Using section 2550.404a-5 as a vehicle entirely
to remove a fiduciary monitoring duty would seem to contradict
this language. See Field Assistance Bulletin No. 2012-02 Q&A
39, supra (“[A] plan fiduciary’s failure to designate investment
alternatives, for example, to avoid investment disclosures under
the regulation, raises questions under ERISA section 404(a)'s
general statutory fiduciary duties of prudence and loyalty.”).
Furthermore, a plan sponsor can incur liability when it
fails to carefully select or monitor the service provider, and
that service provider then breaches a delegated duty. See 29

U.S.C. §§ 1104, 1105(c)(2). If the service provider has no duty
to monitor the contents of a brokerage window, that implies the
plan sponsor has no duty to oversee the service provider of the
brokerage window, because it cannot breach its fiduciary duties
by failing to monitor a party that itself has no fiduciary
duties. Cf. Brotherston, 907 F.3d at 32 (explaining that a
fiduciary can incur liability for failing to independently
verify decisions by the service provider); Rinehart v. Lehman
Bros. Holdings Inc., 817 F.3d 56, 68 (2d Cir. 2016) (“Plaintiffs
cannot maintain a claim for breach of the duty to monitor . . .
absent an underlying breach of the duties imposed under ERISA .
. . .” (first omission in original) (quoting Rinehart v. Akers,

722 F.3d 137, 154 (2d Cir. 2013))). Thus, this lax reading of
section 2550.404a-5 could relieve a fiduciary of its duty
prudently to select a service provider, contradicting its own
language.
In sum, there is significant lack of clarity regarding the
duties a fiduciary owes with regard to the funds within a
brokerage window. This Court need not decide this thorny issue,
however, because Fidelity was not offering its proprietary funds
through a brokerage window or its equivalent.
a. “Brokerage Window” or “Equivalent”
The Plaintiffs contend that the proprietary funds offered
on Fidelity’s platform were not offered through a program

“similar” to a brokerage window. Pls.’ Reply Mem. L. Supp. Mot.
Summ. J. (“Pls.’ Reply”) 9-12, ECF No. 176. The Plaintiffs are
correct. The manner in which Fidelity offered funds to Plan
participants was not “similar” to the manner in which it offered
funds through a brokerage window, but instead was far more
similar to the manner in which it had offered the funds when
they were considered “on the Plan” prior to the Settlement.
At first glance, the definition of “brokerage window” would
appear sufficiently vague to encompass Fidelity’s program. The
original regulation defining “brokerage window” and “similar”
vehicles defines them as “plan arrangements that enable
participants and beneficiaries to select investments beyond

those designated by the plan,” see 29 C.F.R. § 2550.404a-
5(h)(4), without defining what “similar” means. See also Scott
Mayland, Ratcheting up the Duty: The Department of Labor's
Misguided Attempt to Impose a Paternalistic Model upon Defined
Contribution Plans Through ERISA, 75 Ohio St. L.J. 645, 661-62
(2014) (echoing the definition from § 2550.404a-5(h)(4)). The
common definition is similar, referring to “a facility allowing
plan participants to buy and sell securities through a brokerage
platform.” James Chen, Brokerage Window, Investopedia.com (Nov.
20, 2019),
https://www.investopedia.com/terms/b/brokerage_window.asp. The
Department has treated the term very broadly,6 but only in the

6 “The Department understands that a variety of different
plan and investment arrangements may be encompassed by the terms
‘brokerage window,’ ‘self-directed brokerage account,’ and
similar arrangements. For example, open mutual fund windows may
permit participants to invest in hundreds or thousands of mutual
funds. More limited mutual fund windows or ‘supermarkets’ may
permit participants to invest in any mutual fund on one or more
of a particular vendor’s platforms, but not necessarily every
mutual fund on the market. Other brokerage accounts also offer
participants access to a virtually unlimited number of
individual stocks, exchange-traded funds, and other securities.”
79 Fed. Reg. at 49,471.
preamble to a request for information that lacks the force of
law. See 79 Fed. Reg. at 49,471.
The way other courts have treated self-direct brokerage
accounts provides a better indicia of how they are defined in
practice. In Tracey v. Massachusetts Inst. of Tech., another

session of this Court described Fidelity’s BrokerageLink
platform as “designed for investors with a higher appetite for
risk and independent management.” 404 F. Supp. 3d 356, 359 (D.
Mass. 2019) (Gorton, J.). In Brotherston v. Putnam Invs., LLC,
this Court noted that only two percent of plan assets were
invested in a self-directed brokerage account offered by the
defendant company. No. 15-13825-WGY, 2017 U.S. Dist. LEXIS
93654, at *14 n.7 (D. Mass. June 19, 2017), aff’d in part and
vacated in part, 907 F.3d 17 (1st Cir. 2018). Another court has
contrasted funds available through BrokerageLink with
“principal” funds offered on a plan, which the fiduciary had a
duty to select and monitor. In re Wash. Mut., Inc., No. 2:08-

md-1919 MJP, 2009 U.S. Dist. LEXIS 109961, at *16 (W.D. Wash.
Oct. 5, 2009). On appeal in Brotherston, the First Circuit
noted that over 85% of assets were invested in the defendant
Putnam’s proprietary funds offered “under the Plan,” and that
Putnam was responsible for “selecting, monitoring, and removing
investments from the Plan’s offering.” 907 F.3d at 23. These
cases suggest that self-directed brokerage accounts are designed
for the small percentage of active, independent investors, as
opposed to normal funds -- whether called “DIA,” “principal” or
merely “on the plan” -- designed for the majority of non-expert
investors.
With these indicia in hand it is manifest that there are

significant similarities between how Fidelity offered its
designated and non-designated proprietary funds, and that the
treatment of these options differed significantly from that of
non-Fidelity funds. Fidelity itself has noted that self-
directed brokerage accounts allow investors to “access a larger
investment universe”; that was not what was happening with
Fidelity’s proprietary funds offered on the Plan. Def.’s SOF ¶
61. All proprietary funds were offered on Fidelity’s internal
NetBenefits platform rather than the BrokerageLink platform used
to access outside funds. Defs.’ Resp. SOF ¶ 10. Accessing the
BrokerageLink platform required visiting a separate webpage,
creating a separate login, and waiting up to two business days,

while participants could automatically access the Fidelity
funds. Pls.’ SOF ¶ 11. Additionally, there is “no difference”
between how Fidelity funds were offered before and after the
Settlement, even though Fidelity argues that after the
Settlement its proprietary funds should have been considered to
be in the equivalent of a separate window. Id. ¶ 10. Following
the re-enrollment period that resulted from the 2014 plan
amendment, only 1.41% of Plan participants moved to the non-
proprietary funds on BrokerageLink, and the majority of plan
assets remained in the non-monitored proprietary Fidelity funds.
Id. ¶¶ 15-16. Fidelity’s own description of brokerage windows
in a 2014 letter to the Department appears to describe the type

of offering available through BrokerageLink, not the proprietary
funds available through NetBenefits. See Decl. Kai Richter, Ex.
2, Letter from Douglas O. Kant & Krista M. D’Aloia to the
Department (Nov. 19, 2014) 4, ECF No. 177-2 (noting that
Fidelity typically offers BrokerageLink as the brokerage window
option for employers, and that only 2.6% of individuals across
all employers with access to BrokerageLink utilize it). On the
whole, the offering of the proprietary Fidelity funds on
NetBenefits appears highly dissimilar to expert-level self-
directed brokerage accounts (of the sort offered through
BrokerageLink), and highly similar to the type of fund normally
offered “on a plan.”

Additionally, allowing a recordkeeper easily to disclaim
fiduciary liability for its proprietary funds contradicts the
goals of ERISA. There is no law preventing a recordkeeper from
offering its own proprietary funds in a brokerage window. See
Larson, 350 F. Supp. 3d at 797 (citing Hecker, 556 F.3d at 586).
When a recordkeeper is also the manager of a retirement plan,
however, it is not a disinterested party. It may earn
significant profits at the expense of participants in the plan
because it has the unique ability to “stuff” a plan with its own
“costly investment products.” Id. (quoting In re M&T Bank Corp.
ERISA Litig., No. 16-CV-375 FPG, 2018 U.S. Dist. LEXIS 154641,
at *4, (W.D.N.Y. Sept. 11, 2018)). This Court need not, and

does not, decide whether any unseemly “stuffing” is happening in
this case. Yet this concern occasions significant reason not to
give Fidelity the benefit of the doubt, given that its theory
would allow it effectively to disclaim all fiduciary liability
whatsoever for mutual funds available outside the two DIAs.
When there are already ample indicia that the offering of
proprietary funds was not “similar” to a self-directed brokerage
window, this Court is not willing to extend that benefit and to
excuse it from a duty to monitor its proprietary funds.
In conclusion, as Fidelity was not offering its funds in
the equivalent of a brokerage window, it can face fiduciary
liability for its lack of monitoring subsequent to the

Settlement.
The question whether this alleged lack of prudence actually
led to any losses is one of causation: a question upon which the
defendant bears the burden of proof. Brotherston, 907 F.3d at
39. The plaintiff still bears the burden of showing the
existence and extent of the alleged loss. Id. In their
complaint, the Plaintiffs put forward numerous theories
regarding how Fidelity’s lack of monitoring could have caused
losses to the plan. Specifically, the Plaintiffs argue that
Fidelity retained proprietary funds in the Plan despite
excessive fees, Compl. ¶ 65, failed to investigate less-costly
non-proprietary funds, id. ¶¶ 66-67, failed to utilize the

cheapest available share class of certain proprietary funds, id.
¶ 72, retained inappropriately speculative funds, id. ¶¶ 76-84,
should have investigated better-performing non-proprietary
funds, id. ¶¶ 85-88, and failed to remove underperforming
proprietary funds from its lineup over time, id. ¶¶ 89-94. Yet
the parties in their letter requesting a case-stated resolution
indicated that the scope of this judgment ought be limited to
liability issues. It is therefore premature upon this record to
determine whether any loss has occurred and, if so, whether the
lack of monitoring caused it.
2. Investigation of Separate Accounts, Collective Trusts,
and Stable Value Funds

The Plaintiffs argue that Fidelity breached its fiduciary
duties by failing to investigate non-mutual fund investment
vehicles, such as collective trusts and separate accounts. Id.
¶¶ 68-71.7 They also argue that Fidelity had a duty to

7 Separate accounts and collective trusts are types of
investment vehicle available to institutional investors. For
plans with significant assets, offering separate accounts can
lead to substantial savings compared with utilizing mutual
investigate stable value funds as an alternative to its money
market accounts. Id. ¶¶ 95-100.8 This Court concludes, however,
that Fidelity did not incur liability because it had no inherent
duty to investigate these particular types of funds.
While Fidelity offered several money market funds as

capital preservation options, it did not offer stable value
funds as an option. See Defs.’ SOF ¶ 64. Fidelity also did not
offer collective trusts or separate accounts as investment

funds. See Pension & Welfare Benefits Administration, U.S.
Dep’t of Labor, Study of 401(k) Plan Fees and Expenses, at 16
(April 13, 1998),
https://www.dol.gov/sites/default/files/ebsa/researchers/analysi
s/retirement/study-of-401k-plan-fees-and-expenses.pdf. Many
funds have adopted collective trusts or separate accounts as
options in addition to mutual funds, and they are more common
for larger funds. BrightScope & Investment Co. Inst., The
BrightScope/ICI Defined Contribution Profile: A Close Look at
401(k) Plans, at 21 (Dec. 2014),
https://www.ici.org/pdf/ppr_14_dcplan_profile_401k.pdf. The
regulatory and transparency requirements of separate accounts
and collective trusts, however, differ significantly from those
of mutual funds, making direct comparison between them “apples-
to-oranges.” White v. Chevron Corp., No. 16-cv-0793-PJH, 2016
U.S. Dist. LEXIS 115875, at *37 (N.D. Cal. Aug. 29, 2016)
(citing Tibble v. Edison Int’l, 729 F.3d 1110, 1134 (9th Cir.
2013), vacated and remanded, 135 S. Ct. 1823 (2015)).

8 Stable value funds are a type of investment vehicle that
provide a low-volatility rate of return guaranteed by an
underlying contract. David F. Babbel & Miguel A. Herce, Stable
Value Funds Performance, 6 Risks 2018, no. 1(12), Feb. 2018, at
3, http://www.mdpi.com/2227-9091/6/1/12/pdf. Many large plans
use stable value funds rather than money market funds as their
default capital preservation option. Chris Tobe, Do Money-
Market Funds Belong in 401(k)s?, MarketWatch (Aug. 30, 2013),
http://www.marketwatch.com/story/do-money-market-funds-belong-
in-401ks-2013-08-30.
options. Id. ¶¶ 60, 93. In fact, the June 2014 amendment to
the Plan required that Fidelity make only mutual funds available
through its “open architecture” window. Id. ¶ 53; Thomson
Decl., Ex. 3, First Amendment to 2014 Plan Restatement, §
12.2(c), ECF No. 138-4. Fidelity declined to investigate the

possibility of including alternatives to mutual funds on the
Plan –- including collective trusts and stable value funds –-
because of these restrictions in the 2014 First Amendment.
Thomson Decl., Ex. 9, Deposition Ralph Derbyshire 85:16-88:7,
ECF No. 138-11.
Fidelity makes two arguments in rebuttal. It first asserts
that the original design of the Plan in the 2014 amendment was a
settlor act for which Fidelity did not owe a fiduciary duty.
Defs.’ Mem. 14 (quoting Lockheed Corp. v. Spink, 517 U.S. 882,
890 (1996)). This argument is unavailing because the Plaintiffs
are claiming that Fidelity breached its duty not in the original
design of the Plan, but instead in its continued failure to

investigate mutual fund alternatives during the class period, an
aspect of its continued duty to monitor. See Pls.’ Opp’n 5
(citing Dudenhoeffer, 134 S. Ct. at 2468).
Fidelity also argues that it had no specific duty to
investigate alternatives to mutual funds. Defs.’ Mem. 15. Here
it is on firmer ground. Numerous courts have ruled that plans
are under no duty to offer alternatives to mutual funds, even
when the plaintiffs argue they are markedly superior. See id.
at 15 n.17 (citing Larson, 350 F. Supp at 796; White, 2016 U.S.
Dist. LEXIS 115875, at *25-37; Dorman v. Charles Schwab Corp.,
No. 17-00285-CW, 2018 U.S. Dist. LEXIS 218049, at *10-12 (N.D.
Cal. Sept. 20, 2018)); see also Loomis v. Exelon Corp., 658 F.3d

667, 670 (7th Cir. 2011) (“[N]othing in ERISA requires every
fiduciary to scour the market to find and offer the cheapest
possible fund . . . .” (quoting Hecker, 556 F.3d at 586)).
Since plans are under no duty to offer any particular type or
mix of funds, “ERISA does not require a retirement plan to offer
an index fund or a stable value fund, and the failure to include
either in the Plan, standing alone, does not violate the duty of
prudence.” Wildman v. American Century Servs., LLC, 362 F.
Supp. 3d 685, 704 (W.D. Mo. 2019) (citing Hecker, 556 F.3d at
586).
Still, the Plaintiffs are correct in pointing out that most
of these cases imply there may be some duty to investigate the

possibility of offering alternatives to mutual funds. In
Wildman, the court found that defendants had not breached their
fiduciary duty in declining to offer index funds or stable value
funds because it analyzed their decision-making and found it
prudent. 362 F. Supp. 3d at 704-05 (“[T]he issue is whether the
Defendants considered these options and came to a reasoned
decision for omitting them from the Plan. The evidence shows
the[y] did so.”). Similarly, in White, the court denied a
motion to dismiss on this issue because the complaint had failed
to plead specific facts indicating that defendants had not made
a reasoned decision. 2016 U.S. Dist. LEXIS 115875, at *23-24.
There are several cases at the district court level holding

that a plan is under no such duty to investigate these
alternatives. In Main v. American Airlines, Inc., the Northern
District of Texas found that a fiduciary defendant had not
breached its duty by failing either to offer or investigate
alternatives to mutual funds. 248 F. Supp. 3d 786, 794 (N.D.
Tex. 2017). That opinion did not explain, however, why the lack
of duty to offer alternatives to mutual funds also translated
into a lack of duty to investigate. Id. In Larson, the
district court also found that the plaintiffs had failed to
state a claim for breach of duty by failing to “explore
collective trusts and separate accounts in lieu of mutual
funds,” particularly as the plan document in that case

prohibited offering these investment vehicles. 350 F. Supp. 3d
at 796. That opinion similarly did not analyze the issue of
whether there was a duty to “explore” these options, focusing
instead on the merits of the respective options. Id. at 796,
802-03.
This Court agrees that there is no fiduciary duty to
investigate alternatives to mutual funds. Separate accounts,
collective trusts, and stable value funds are all common
investment instruments with the potential to outperform mutual
funds. See Terraza v. Safeway Inc., 241 F. Supp. 3d 1057, 1075
(N.D. Cal. 2017) (analyzing common trusts and separately managed
accounts); Abbott v. Lockheed Martin Corp., 725 F.3d 803, 806

(7th Cir. 2013) (noting that stable value funds generally
outperform money market funds). These non-mutual fund vehicles
differ so much from mutual funds, however, in terms of their
regulatory and transparency features that other courts have
found it impossible to make an “apples-to-oranges” comparison of
the two. White, 2016 U.S. Dist. LEXIS 115875, at *37 (quoting
Tibble, 729 F.3d at 1134); see also Loomis, 658 F.3d 671-72.
Unlike mutual funds, these alternatives are not subject to the
reporting, governance, and transparency requirements of the
Securities Act of 1933, 15 U.S.C. § 77a et seq., and the
Investment Company Act of 1940, 15 U.S.C. § 80a-1 et seq. See
Tibble, 729 F.3d at 1134 (citing Renfro v. Unisys Corp., 671

F.3d 314, 318 (3d Cir. 2011); Jones v. Harris Assocs. L.P., 559
U.S. 335, 338 (2010)). Other courts have found that ERISA
defendants acted prudently in both offering and declining to
offer these alternatives to mutual funds. Compare Terraza, 241
F. Supp. 3d at 1075 (rejecting the argument that choosing to
offer mutual fund alternatives is a per se violation of
fiduciary duty), with Larson, 350 F. Supp. 3d at 796 (rejecting
the argument that choosing not to offer mutual fund alternatives
is a per se violation of fiduciary duty). Conversely, the
Plaintiffs (and this Court) have found no cases where a court
held that a fiduciary breached its duty by making an informed
decision not to offer these alternatives. The fact that courts

have repeatedly upheld fiduciaries’ decisions not to offer these
alternatives indicates that a prudent fiduciary is under no
reasonable duty to offer them.
As Fidelity pointed out at oral argument, the managers of
the fund “didn’t consider . . . gold bars or they didn’t
consider hedge funds.” Tr. Case Stated Hr’g 20. There is no
inherent fiduciary duty to offer any particular type of
investment vehicle, whether gold bars, hedge funds, collective
accounts, or stable value funds. See Hecker, 556 F.3d at 586;
Wildman, 362 F. Supp. 3d at 704. The Plaintiffs have failed to
show that a prudent fiduciary would have considered these
alternatives to mutual funds, and because liability for

Fidelity’s lack of monitoring is derivative of the underlying
violation, Brotherston, 907 F.3d at 39, without an underlying
breach there can be no liability. In conclusion, Fidelity has
breached no duty by declining to offer stable value funds,
collective accounts, or collective trusts.
3. Duty to Monitor Recordkeeping Expenses

The Plaintiffs next argue that Fidelity has breached its
fiduciary duty to monitor the Plan’s recordkeeping expenses.
Pls.’ Mem. 1. Fidelity does not dispute that the Plan
Fiduciaries declined to monitor recordkeeping expenses but
argues that it has not violated its fiduciary duties because all
expenses were returned to the Plan through the mandatory Revenue
Credit, and thus netted to zero. Defs.’ Mem. 15-16. Its
argument rests on the proposition that “there is no breach of a
duty to be cost-conscious where there are no costs.” Defs.’
Opp’n Mot. Partial Summ. J. (“Defs.’ Opp’n”) 10, ECF No. 165
(emphasis in original).
Fiduciaries have a general duty to monitor recordkeeping
expenses. This duty stems from a fiduciary’s prudential duty to
be cost-conscious in administering its duties. Restatement
(Third) of Trusts § 88 cmt. a (2007); Tibble v. Edison Int’l,
843 F.3d 1187, 1197-98 (9th Cir. 2016). Courts have found that

fiduciaries can breach their duty of prudence by failing
diligently to investigate and monitor recordkeeping expenses.
Tussey v. ABB, Inc., 746 F.3d 327, 336 (8th Cir. 2014)
(upholding a district court finding of breach of duty for
failure to monitor); Pledger v. Reliance Tr. Co., 240 F. Supp.
3d 1314, 1329-30 (N.D. Ga. 2017); Tracey v. Massachusetts. Inst.
Of Tech., No. 16-11620-NMG, 2017 U.S. Dist. LEXIS 162806, at
*42-47, 60 (D. Mass. Aug. 31, 2017) (Bowler, M.J), adopted in
relevant part, 2017 U.S. Dist. LEXIS 161263, at *2-3 (D. Mass.
Sept. 29, 2017) (Gorton, J.); Order, Tracey v. Massachusetts.
Inst. Of Tech., Civ. A. No. 16-11620 (D. Mass. Oct. 4, 2017),
ECF No. 79.

The Plan’s current recordkeeping expense regime first
appeared in the Eighth Amendment to the 2005 Restatement of the
Plan. Defs.’ SOF ¶ 16. This Amendment included the addition of
a Revenue Credit, which approximated the revenue paid to
Fidelity by the Plan. Id.; Rosenberg Decl., Ex. 34, FMR Corp.
Profit Sharing Plan, Eighth Amendment to 2005 Restatement
MOITOSO0014016, ECF 142-34. When Fidelity amended the Plan
again in July 2014 pursuant to the Bilewicz Settlement
Agreement, this Revenue Credit was altered to require the
inclusion of any revenue-sharing Fidelity received for
investments in non-Fidelity funds. Thomson Decl., Ex. 1, FMR
LLC Profit Sharing Plan: 2014 Restatement (“2014 Profit Sharing

Plan”) art. 5.1, ECF No. 138-1. The full amount of this Revenue
Credit is calculated and distributed each year back to the Plan.
Defs.’ SOF ¶¶ 122-123. These clauses, in effect, reimburse the
Plan an amount at least equivalent to all fees paid into it,
which is an amount higher than the total recordkeeping expense.
Id. ¶ 126. The entire system of returning Revenue Credits to
the Plan is codified in the 2014 amendment and is mandatory
under those rules. 2014 Profit Sharing Plan art. 5.1-2. The
establishment of this Revenue Credit was a settlor act, as the
design of a plan is a settlor function. See Lockheed Corp., 517
U.S. at 890.
Because Fidelity credited all revenue generated by the Plan

back to the Plan through this Revenue Credit, the Plan
Fiduciaries, including the Retirement Committee, did not monitor
these expenses or conduct third-party benchmarking of its fees.
Def.’s SOF ¶ 128. The Retirement Committee also never reviewed
the fee disclosures required by ERISA section 408(b)(2), 29
U.S.C. § 1108, and the relevant regulation, 29 C.F.R. §
2550.408b-2(c). Pls.’ SOF ¶ 29. These fee disclosures
indicated that, in 2017 for example, Fidelity charged $288 per
participant for recordkeeping services, as well as an additional
$212 per person for “Additional Value for Fidelity Products”
(making an even $500 per head), or a total of 0.19% of assets.

Thomson Decl., Ex. 59, Statement Services & Compensation
Fidelity Retirement Savings Plan FID0001247, ECF 138-61. The
parties have stipulated that if Fidelity were a third party
negotiating this fee structure at arms-length, the value of
services would range from $14-$21 per person per year over the
class period, and that the recordkeeping services provided by
Fidelity to this Plan are not more valuable than those received
by other plans of over $1,000,000,000 in assets where Fidelity
is the recordkeeper. Thomson Decl., Ex. 65, Stipulations of
Facts (“Stipulations of Facts”) 3-4, ECF 138-67.
The 2014 Amendment also dictated how the Revenue Credit
would be distributed to Plan participants. 2014 Profit Sharing
Plan arts. 3.3, 5.1, 5.2, 6.2. Article 6.2(f) of the 2014

Profit Sharing Plan states that each participant shall receive
an amount equal to the sum of the Revenue Credit and the
discretionary Employer Profit Sharing Contribution, in an amount
proportionate to their compensation. This clause applies only
to those employees who meet the requirements of section 3.3.
Id. Article 3.3 states that the Employer Profit Sharing
Contribution and the Revenue Credit shall be distributed only to
current employees. All members of the class action in this case
are former employees of Fidelity who did not receive the Revenue
Credit for at least a portion of the class period because they
were excluded by the Plan. Compl. ¶ 119.
For qualified employees, the total of the Revenue Credit

and the discretionary company contribution was 10% for all years
immediately preceding the 2014 Settlement and for all years
since then. Pls.’ SOF ¶ 35. Prior to 2014, this 10%
contribution consisted entirely of discretionary profit sharing,
while after 2014 the amount consisted of the Revenue Credit plus
a discretionary amount. Id. Thus, the discretionary
contribution from Fidelity increased or decreased based on the
value of the mandatory Revenue Credit. See Thomson Decl., Ex.
70, FMR LLC Retirement Committee Meeting Minutes (Dec. 9, 2014)
2, ECF No. 138-73; Thomson Decl., Ex. 69, Retirement Benefits
Overview FID0000128, ECF No. 138-72.
Fidelity argues that the Bilewicz release shields it from

liability because the Revenue Credit structure derives from the
2014 Amendment, which was part of the Settlement. Defs.’ Mem.
7. As explained in section II.A, supra, the release cannot
disclaim Fidelity’s continued duty to monitor, so the Plaintiffs
are correct that Fidelity can potentially incur liability for
any losses that stem from a lack of monitoring. See Pls.’ Opp’n
13-14.
The main dispute between the parties concerns whether the
Revenue Credit system shields Fidelity from fiduciary liability
notwithstanding the lack of monitoring, because the Plan itself
could not have sustained any losses when all revenue was
automatically returned to it. The Plaintiffs present two

theories to explain how the Plan may have incurred a loss: that
the Revenue Credits were “illusory,” and that all members of the
class action, as former employees, did not receive the benefit
of these Revenue Credits.
a. The Revenue Credits theory
The Plaintiffs’ first theory of liability is that the
Revenue Credit system is essentially “illusory” because the
total compensation returned to eligible employees remained at
10% both before and after the 2014 amendment, and thus the
Revenue Credits are nothing more than an “accounting gimmick.”
Pls.’ Mem. 7. This matters, the Plaintiffs argue, because it
shows that the Revenue Credit was really being used to shore up

Fidelity’s compensation structure. Tr. Case Stated Hr’g 38-39.
The Plaintiffs assert in summary that Fidelity is attempting to
use these Revenue Credits as a “double credit” -- against both
the Plan expenses and against Fidelity’s profit-sharing year-end
bonus. Id. at 40.9
The Plaintiffs point to the First Circuit’s holding in
Brotherston for the proposition that employers may not “claw
back with their fiduciary hands compensation granted with their
employer hands.” Id. at 36 (quoting 907 F.3d at 26). The facts
in Brotherston differ enough from the facts here, however, that
the cited language is not on point. There, the employer,

9 At the case-stated hearing, the Plaintiffs also argued
that Fidelity was seeking a “triple credit” because if an
employee departs the company in less than five years, her
account balance will not be fully vested, and the Revenue Credit
portion can be used to offset other company contributions. Tr.
Case Stated Hr’g 44 (citing 2014 Profit Sharing Plan arts. 6.4,
9.2, 9.4). While the Revenue Credit portion is not itself
subject to forfeiture, the forfeiture account as a whole can be
used to pay for “appropriate Plan expenses.” 2014 Profit
Sharing Plan art. 6.4(c). If the forfeiture account is being
used to pay Plan expenses, though, there would still be no loss
to the owner of the account because it could only be used to pay
for expenses she would otherwise owe regardless. Thus, this
Court finds that there is no “triple credit” problem.
Putnam, provided discretionary payments to employees’ 401(k)
accounts to offset recordkeeping fees, and the First Circuit
ruled that the plan itself could nonetheless be considered to
have lost value, because these payments were made in Putnam’s
capacity as an employer, rather than as a fiduciary. 907 F.3d

at 28, 31-32. Here, the payments into the 401(k) accounts of
Fidelity employees, though created by a settlor act, are
mandatory. This distinction matters because it means that after
the changes came into effect, Fidelity paid the revenue credits
pursuant to its duty to administer the Plan, a fiduciary -- not
settlor -- act. Thus there is no “clawing back” within the
context of the Plan, because only Fidelity’s fiduciary hand is
at work within the Plan.
To the Plaintiffs’ charge that Fidelity was not providing
any real consideration by offering the Revenue Credits, see
Pls.’ Opp’n 7, Pls.’ Reply 14-15, Fidelity responds that “a
legally enforceable right is not a gimmick,” and that following

the 2014 Amendment, Plan participants gained a right to enforce
the Revenue Credits that did not exist before. Defs.’ Opp’n 11
(citing In re Halpin, 566 F.3d 286, 289 (2d Cir. 2009)). It
further points out that if it had made no discretionary
contributions to supplement the mandatory credits, then the
Plaintiffs would not have a claim, so they are alleging a breach
based on “Fidelity’s being generous.” Id. at 11 n.8 (emphasis
deleted). On this point, Fidelity is correct that Plan
participants did receive consideration in the Settlement by
virtue of the Revenue Credit becoming mandatory. See In re
Halpin, 566 F.3d at 289.
Regarding the alleged “accounting gimmick,” ERISA does not

protect members of a Plan from employers who reduce
discretionary compensation to offset fiduciary benefits.
“ERISA’s principal function [is] to ‘protect contractually
defined benefits.’” US Airways, Inc. v. McCutchen, 569 U.S. 88,
100 (2013) (quoting Massachusetts Mut. Life Ins. Co. v. Russell,
473 U.S. 134, 148 (1985)). ERISA protects only benefits granted
by a plan, and generally does not protect participants from
decisions made by their employers outside the plan’s language.
See Coulter v. Morgan Stanley & Co. Inc., 753 F.3d 361, 368 (2d
Cir. 2014) (“Courts have consistently explained that conflicts
may exist between an employer’s interests and an employee’s
interests and that, as a result, settlor functions may

detrimentally impact a benefits plan.”); Akers v. Palmer, 71
F.3d 226, 231 (6th Cir. 1995) (explaining that the existence of
conflicts between employers and employees is inevitable and does
not give rise to fiduciary duty).
Decisions made at an employer’s discretion are said to be
made in its “business” capacity. See Noorily v. Thomas & Betts
Corp., 188 F.3d 153, 158 (3d Cir. 1999) (explaining that an
employer must administer a plan in its fiduciary capacity by
providing all contractual benefits to eligible employees, but
that the determination about which employees were eligible was
instead a business decision allowed by the plan). A trustee’s
discretionary decision-making when granted by a plan is reviewed

under an abuse of discretion standard, see Varity Corp., 516
U.S. at 514-15, while a business’s discretionary decisions
outside a plan are protected by the highly deferential “business
judgment rule,” the presumption that it acted on an informed
basis and in good faith. Cf. Risberg ex rel. Aspen Tech., Inc.
v. McArdle, 529 F. Supp. 2d 213, 220 (D. Mass. 2008) (Stearns,
J.) (discussing business judgment rule under Delaware law).
Here, Fidelity’s decision to change its yearly
discretionary payments based on the amount of mandatory Revenue
Credit was a business judgment. These discretionary payments
were outside the Plan; calculated in response to the Plan, but
not dictated by the Plan. Businesses must be able to make

business decisions based on weighing the costs of their
fiduciary outflows, simply as a function of balancing their
books. See, e.g., Douglas J. Elliott, What Happens to GM
Pensions in Bankruptcy?, Brookings (May 29, 2009),
https://www.brookings.edu/research/what-happens-to-the-gm-
pensions-in-bankruptcy/ (describing how General Motors’ 2009
bankruptcy would affect its pension plan, and how overfunding
the pension plan contributed to its bankruptcy). What Fidelity
is doing here with its year-end bonuses is no different from a
legal standpoint. In conclusion, Fidelity’s business decision
to set the total end-of-year bonus at 10% does not violate its
fiduciary duties because a proper fiduciary analysis includes

only the actions taking place within the Plan, all of which were
mandatory.
b. The Former Employees Theory
The Plaintiff’s second theory of liability is that members
of its class have incurred losses because all of them, at some
point during the class period, paid for recordkeeping expenses,
but did not receive back Revenue Credits because they were no
longer employed by Fidelity. Pls.’ Opp’n 8. The Plaintiffs
developed this theory first as part of their now-withdrawn
second claim that Fidelity had violated its duty of
impartiality, but at oral argument repurposed it as evidence
that the Revenue Credits were being used as a form of

compensation rather than reimbursement. Tr. Case Stated Hr’g
39-41. They argue that this means, in effect, that the members
of the class action have suffered a loss. Id. at 41. Fidelity
argues that losses to the plan must be analyzed at the Plan
level, not the individual level, and as the Plan has not
suffered a net loss, the individualized members of the class
have no claim. Defs.’ Mem. 17.
The Plaintiffs’ theory has merit because 29 U.S.C. §
1132(a)(2) allows for the equitable relief of surcharge for
losses sustained by individuals, even when a Plan has not
suffered losses. Here, members of the class paid higher
recordkeeping fees as a result of Fidelity’s failure to monitor.

This is a violation of the duty of prudence for which the
Plaintiffs may seek equitable relief, even though the Court does
not credit Plaintiffs’ theory that the high recordkeeping
expenses evidence a breach of the duty of loyalty.
There are two potential pathways for analyzing loss under
the duty of prudence: through section 1132(a)(2) and through
section 1132(a)(3). For purposes of a section 1132(a)(2) cause
of action, the controlling case is LaRue v. DeWollf, Boberg &
Assocs., Inc., 552 U.S. 248 (2008). The Supreme Court in LaRue
held that, in circumstances where the beneficiary of a defined
contribution 401(k) retirement plan incurred losses in his
individual account due to his employer’s failure to carry out

his directions, that individual beneficiary could have a cause
of action for fiduciary breach under section 1132(a)(2) of
ERISA. Id. at 256. The Supreme Court distinguished its
previous holding in Russell that there was no such
individualized injury for the beneficiary of a defined benefits
plan, 473 U.S. at 140, by stating that “[f]or defined
contribution plans . . . fiduciary misconduct need not threaten
the solvency of the entire plan to reduce benefits below the
amount that participants would otherwise receive.” LaRue, 522
U.S. at 255-56. In so ruling, the Supreme Court also stated
that “[section 1132(a)(2)] does not provide a remedy for
individual injuries distinct from plan injuries.” Id. at 256.

This distinction is crucial. In LaRue, the plaintiff
alleged that the plan had suffered a loss due to its fiduciary
breach, even if the entirety of that loss was confined to his
account. 552 U.S. at 251. Here, the Plaintiffs have alleged
only individual losses, with no net loss to the Plan. Though
the Court in LaRue distinguished Russell insofar as it stated
that a loss need not threaten the “entire plan,” it did not
overturn the analysis in Russell that defined the fiduciary
relationship as being one between the fiduciary and the “plan.”
LaRue, 552 U.S. at 254 (citing Russell, 473 U.S. at 136-42; 29
U.S.C. § 1109(a)). Reading the two cases together, the Court
concludes that there must be some net loss to the Plan to create

cognizable liability under sections 1132(a)(2) and 1109(a).
This Court may, however, grant equitable relief under
section 1132(a)(3). Courts may grant equitable relief for
“those categories of relief that were typically available in
equity (such as injunction, mandamus, and restitution, but not
compensatory damages).” Mertens, 508 U.S. at 256. Equitable
relief is an available remedy for individuals even when the Plan
as a whole has not suffered losses, see Varity Corp., 516 U.S.
at 510, if such relief is “appropriate.” 29 U.S.C. §
1132(a)(3). Surcharge, the equitable form of relief that
compensates a beneficiary for losses traceable to a fiduciary’s
breach, may be available under section 1132(a)(3) even when a

party does not have a cause of action under other sections of
ERISA. See Amara, 563 U.S at 442; Moitoso, 410 F. Supp. 3d at
329. Surcharge is defined as “the imposition of personal
liability on a fiduciary for wilful or negligent misconduct in
the administration of his fiduciary duties.” LeBlanc v. Salem
(In re Mailman Steam Carpet Cleaning Corp.), 196 F.3d 1, 7 (1st
Cir. 1999) (alteration omitted) (quoting Black’s Law Dictionary
1441 (6th ed. 1990)).
The decision by the Plan Fiduciaries not to monitor
recordkeeping expenses was clearly negligent. The Plan
Fiduciaries conducted multiple meetings over the course of years
in which they could have accessed the section 408(b)(2)

disclosure reports that contained recordkeeping fees, but they
chose not to request or review them. Pls.’ SOF ¶ 29.
Fidelity’s own training material acknowledged that the Plan
Fiduciaries had an ongoing duty to monitor recordkeeping fees
and perform due diligence, and to ensure that the fees paid were
reasonable. Id. ¶ 27. Particularly, in light of the 2015
ruling in Dudenhoeffer, 134 S. Ct. at 2468, and the 2016 ruling
in Tibble, 135 S. Ct at 1828, both of which emphasized the
importance of the duty to monitor, it was imprudent for the Plan
Fiduciaries to fail to monitor recordkeeping expenses. The
apparent belief on the part of the Plan Fiduciaries that the
Plan incurred no recordkeeping expenses does not provide a

defense, because they failed closely to investigate the
available documentation to confirm that this belief was true.
Pls.’ SOF ¶ 30.
Given the stipulated facts that the recordkeeping services
would have been available to the Plan for a significantly lower
cost per head, Stipulations of Facts 3-4, it is fair to say that
but for the lack of monitoring on the part of the Plan
Fiduciaries, the members of the class action would have paid
less in recordkeeping costs. Surcharge is an “appropriate”
remedy in these circumstances. Here, the Plan Fiduciaries were
negligent in failing to monitor recordkeeping expenses, an
important component of the administration of their fiduciary

duties. There are no “special circumstances” excusing this
breach of their duties, see Restatement (Third) of Trusts § 95
cmt d., and Fidelity’s primary defense is based on an analysis
of losses at the Plan level that is not necessarily applicable
for equitable remedies.
Conversely, restitution and disgorgement of ill-gotten
gains are not appropriate remedies for this breach. These
remedies are appropriate only if Fidelity had received gains or
profits as a result of the breach, but 100% of the money
collected for recordkeeping expenses was returned to the Plan.
See Mertens, 508 U.S. at 252 (defining “restitution” as
restoring to the plan any profits made by the fiduciary as a

result of breach (citing 29 U.S.C. § 1109(a)). In order to
provide these remedies, this Court would have to find that
Fidelity had in fact accrued profits as a result of its breaches
of fiduciary duty, which would involve finding that the design
of the Plan itself served to extract value from beneficiaries
and place it in Fidelity’s pocket, and thus violated the duty of
loyalty.
The Plaintiffs contend exactly this, arguing that the
Revenue Credits were actually a form of compensation, providing
larger reimbursements to more highly compensated individuals.
Pls.’ Mem. 15 n.14, 17-18; Tr. Case Stated Hr’g 38-39. This is
really a question of how the Plan allocates expenses, rather

than benefits, because after the distribution of the Revenue
Credit each member of the Plan will have paid a different amount
of net expenses, with the members of this class action paying a
higher amount relative to current employees. Fidelity’s Plan
did provide a larger Revenue Credit (and thus lower expenses) to
highly compensated individuals and to current employees than to
former employees, supporting the Plaintiffs’ theory that the
Revenue Credits were acting as a form of compensation, and thus,
gains for Fidelity. Defs.’ SOF ¶ 141; 2014 Profit Sharing Plan
art. 6.2(f). It is common, however, for retirement plans to
differentiate expenses between current and former employees, and
between employees based on factors such as their compensation.

Defs.’ SOF ¶ 141.
Fidelity points out that the design and distribution of the
Revenue Credits is a settlor act, and that ERISA “does not
‘proscribe discrimination in the provision of employee
benefits.’” Defs.’ Mem. 18 (quoting Shaw v. Delta Air Lines,
Inc., 463 U.S. 85, 91 (1983) & citing Walsh v. Bank of Am. Corp.
Severance Program, No. 07cv12315-NG, 2008 WL 2856805, at *4 n.5
(D. Mass. July 22, 2008) (Gertner, J.)). It further argues that
it is barred from providing “addition[s]” to the accounts of
former employees in excess of their compensation, and that as
former employees received no compensation, it could not
reimburse them for administrative expenses. Defs.’ Opp’n 12

(citing 26 U.S.C. § 415(c)(1)). This is because a violation of
these provisions can lead to the loss of the plan’s tax-exempt
status. See, e.g., Churchill, Ltd. Emp. Stock Ownership Plan &
Trust v. Commissioner of Internal Revenue, 104 T.C.M. (CCH) 508,
511-12 (2012).
Ultimately, these are arguments over the design of the Plan
rather than over Fidelity’s lack of monitoring, and the design
of the Plan is covered by the Bilewicz release. Bilewicz
Settlement Agreement § 3.3. Thus, the release in the Settlement
Agreement and the principle of res judicata foreclose analysis
of this issue. Additionally, though “a trustee has a duty to
deal impartially with beneficiaries,” see Morse v. Stanley, 732

F.2d 1139, 1145 (2d Cir. 1984), Fidelity designed the Revenue
Credit system in its capacity as a settlor, and there are no
allegations that it has done anything except accurately carry
out the dictates of the plan document.10 As a settlor, Fidelity
was not under a fiduciary duty of loyalty, so this settlor act
cannot form the basis of an alleged fiduciary violation. See
Lockheed Corp., 517 U.S. at 890. Unlike the Supreme Court
decisions altering Fidelity’s ongoing duty of prudence, there
have been no major changes in binding law since the signing of
the Settlement Agreement indicating that the duty of loyalty
“trumps the instructions of a plan document.” Dudenhoeffer, 134
S. Ct. at 2468; see also Peter J. Wiedenbeck, Untrustworhy:

ERISA’s Eroded Fiduciary Law, 59 Wm. & Mary L. Rev. 1007, 1025-
33 (2018) (explaining that courts do not conduct fiduciary
review of settlor plan design decisions that discriminate
between employees). But see Dana Muir & Norman Stein, Two Hats,

10 That Fidelity violated its duty of impartiality is the
argument the Plaintiffs originally made in their now-withdrawn
Count II. See Compl. ¶ 135-141.
One Head, No Heart: The Anatomy of the ERISA Settlor/Fiduciary
Distinction, 93 N.C. L. Rev. 459, 464-65 (2015) (arguing that
the rigid settlor/fiduciary distinction does not allow for
nuanced policy analysis, and allows plan sponsors to craft plans
that dilute its fiduciary duties).

In conclusion, Fidelity has breached its duty of prudence
with regard to its failure to monitor the recordkeeping
expenses, and the class members may recover under the equitable
doctrine of surcharge. As with the failure to monitor the
proprietary mutual funds, the Plaintiffs at trial will bear the
burden of proving the exact extent of loss (an exercise that may
or may not be trivial given the parties’ stipulations), while
Fidelity will bear the burden of showing this lack of monitoring
has not caused this loss. See Brotherston, 907 F.3d at 39.
C. Count III: The Prohibited Transaction Claim
The Plaintiffs’ third count is based on the alleged
violation of 29 U.S.C. § 1106, which prohibits transactions
between a plan and a party in interest unless one of four

exceptions apply. See 42 Fed. Reg. 18,734, 18,735; Brotherston,
907 F.3d at 27. At issue here is the fourth element of the PTE
77-3 exemption, which asks whether “[a]ll other dealings between
the plan and the investment company . . . are on a basis no less
favorable to the plan than such dealings are with other
shareholders of the investment company.” 42 Fed. Reg. at
18,735.
Fidelity has stipulated that, absent the Revenue Credit
system, “Fidelity’s dealings with the Plan during the Class
Period . . . would have been on terms less favorable than

Fidelity’s dealings with some other shareholders of certain
Fidelity-advised mutual funds.” Stipulations of Facts 4. With
the inclusion of the Revenue Credit system, there was no net
transfer of consideration from the Plan to Fidelity. Defs.’ SOF
¶ 126.
The Plaintiffs cite Brotherston for the proposition that
the Revenue Credits are “irrelevant” to the PTE 77-3 analysis
because they are made in Fidelity’s capacity as an employer,
Pls.’ Mem. 18 (quoting 907 F.3d at 29), but this argument is
based on a misreading of that case. The First Circuit in
Brotherston held that discretionary payments are a form of
compensation. 907 F.3d at 28. The discretionary nature of

these payments was key to the First Circuit’s analysis, because
those contributions were non-fiduciary by virtue of being
“decisions relating to the timing and amount of contributions,”
and therefore did not affect the fiduciary analysis. Id.
(quoting ERISA Practice & Litigation § 3:32). In contrast, the
Revenue Credits system here was mandatory, see 2014 Profit
Sharing Plan art. 5.1(e), and by the logic of Brotherston this
Court may thus consider these mandatory contributions when
conducting its analysis of “[a]ll other dealings.” 42 Fed. Reg.
at 18,735; see also Akers, 71 F.3d at 230 (noting that a company
is bound by fiduciary duty to follow the written terms of a
plan, but not when it is making discretionary decisions).

The Plaintiffs also argue that Fidelity’s actions do not
fall within the PTE 77-3 safe harbor because the Revenue Credits
were not provided to the class members. Pls.’ Mem. 18. As with
the duty to monitor, this is another question of whether a
fiduciary incurs liability at the level of the Plan or of the
individual. The language of the exemption asks if “dealings
between the plan [and the company] . . . are on a basis no less
favorable to the plan” than are comparable dealings with other
shareholders. This language mirrors the language of section
1109, which creates a liability for a breach of fiduciary duty
“with respect to a plan.” The Supreme Court has held that
section 1109 provides for recovery only when the plan itself has

suffered an injury. See LaRue, 552 U.S. at 256; Russell, 473
U.S. at 142. In contrast, section 1132(a)(3)(B), which grants
equitable relief, makes no mention of “the plan,” and can
provide a remedy for individual beneficiaries whose rights have
been violated. See Varity Corp., 516 U.S. at 510. The
Plaintiffs’ theory requires relief at the level of individual
beneficiaries, as allowed under section 1132(a)(3)(B), but the
language of the particular regulations governing prohibited
transactions clearly refers to “the plan.” The appropriate
level of analysis is therefore at the level of the plan, and at
that level, the transactions are protected by PTE 77-3.
In conclusion, because there was no net transfer of

consideration from the Plan to Fidelity for administrative
expenses, and because the proper level of analysis is at the
level of the Plan, Fidelity has not engaged in prohibited
transactions in violation of section 1106.
D. Count IV: the Failure to Monitor Fiduciaries Claim
The Plaintiffs’ fourth count, against FMR LLC only, alleges
that it is a fiduciary and that it failed in its fiduciary duty
of monitoring the FBIC and Retirement Committees to ensure they
were properly administering the plan. Compl. ¶¶ 148-154.
An employer is considered a plan fiduciary when it controls
the administration of the plan. Negron-Fuentes v. UPS Supply
Chain Solutions, 532 F.3d 1, 10 (1st Cir. 2008). FMR LLC is the
sponsor of the Plan, Defs.’ SOF ¶ 14, was responsible for the

writing of the current Plan documents, id., and appointed the
Retirement Committee, which was the named fiduciary and plan
administrator, Pls.’ SOF ¶ 13. Though the Retirement Committee
had the “authority and obligation to control and manage the
operation and administration of the Plan,” these powers were
delegated from FMR LLC. Defs.’ Resp. SOF ¶ 13; see also Thomson
Decl., Ex. 72, Fiduciary Obligations 2, ECF No. 138-75 (naming
the FMR LLC Board of Directors as a fiduciary in an internal
briefing).
A plan sponsor is a fiduciary only when acting in certain
roles. For example, when amending or terminating a plan, a plan

sponsor acts in a settlor role, Lockheed Corp., 517 U.S. at 890,
but when overseeing the ongoing administration of a plan, the
sponsor acts in a fiduciary role. See 29 U.S.C. § 1002(21)(A)
(explaining that a person is a fiduciary of a plan if she
exercises any discretionary authority, renders investment
advice, or has any discretionary authority in the administration
of a plan). In particular, when a plan sponsor appoints other
fiduciaries, that appointment is a fiduciary function because it
is discretionary and carries an ongoing duty to monitor. Kling
v. Fidelity Mgmt. Trust Co., 323 F. Supp. 2d 132, 142 (D. Mass.
2004) (Lasker, J.) (citing Coyne & Delany Co. v. Selman, 98 F.3d
1457, 1465 (4th Cir. 1996)). The Department has also weighed

in, advising that a fiduciary who has delegated responsibility
should review the delegate’s performance at reasonable
intervals. 29 C.F.R. § 2509.75-8, at FR-17. A fiduciary who
violates this ongoing duty to monitor is responsible for any
breaches on the part of the appointed fiduciaries. 29 U.S.C. §§
1104, 1105(a)(2); Howell, 633 F.3d at 573 (citing Leigh v.
Engle, 727 F.2d 113, 133-35 (7th Cir. 1984)).
Here, the FBIC, which derived its fiduciary power from
appointment by FMR LLC, has specifically disclaimed any
obligation to monitor investments other than the two DIAs.
Pls.’ SOF ¶¶ 20-21. By the same token, FMR LLC conducted no
fiduciary monitoring of the FBIC or Retirement Committee to

ensure they were themselves prudently monitoring the menu of
Fidelity investments, because it delegated all investment-
related plan fiduciary duties to the FBIC. Defs.’ Resp. SOF ¶
17. It appears that it did not monitor or investigate the Plan
Fiduciaries either to ensure they were monitoring recordkeeping
expenses. Defs.’ SOF ¶ 128 (“The Plan’s fiduciaries, and in
particular the Retirement Committee that was responsible for the
operation and administration of the Plan, did not conduct
benchmarking or otherwise monitor the administrative revenue
that the Plan generated to Fidelity . . . .”). As this Court
has ruled that the Retirement Committee and FBIC breached their
fiduciary duties in failing to monitor the non-DIA investments

as well as recordkeeping expenses, FMR LLC is also liable for
its breach in failing to monitor.
E. Count V: The Failure to Monitor Fiduciaries Claim
The fifth count of the complaint charges all the Defendants
with profiting from the breach of their fiduciary duties, and
requests equitable relief under section 1132(a)(3) for these
breaches. Compl. ¶¶ 155-162. Like the fourth count, this count
is derivative of the underlying fiduciary breaches alleged in
counts I and III.
Equitable relief may be available to the Plaintiffs based
on Fidelity’s violation of its duty of prudence under count I.
See Moitoso, 410 F. Supp. 3d at 322. This Court notes, however,

that it may not award duplicate recoveries stemming from the
same injury by classifying the injury as creating both loss and
gain. See Silva v. Metro. Life Ins. Co., 762 F.3d 711, 726 (8th
Cir. 2014). At the stage in the proceedings where both parties
have the opportunity to contest causation and loss, additional
equitable remedies may be available to the Plaintiffs, where
appropriate. Amara, 563 U.S. at 444.
III. CONCLUSION
There remains a live issue as to whether Fidelity’s statute
of limitations defense is viable. Additionally, this decision
addresses only the question of liability, not causation or loss.
On the case-stated record, the Court has made the following

findings and rulings:
Fidelity has incurred liability under count I for its
breach of the duty of prudence in failing to monitor proprietary
funds other than the two DIAs, and for failing to monitor
recordkeeping expenses. FMR LLC is liable under count IV for
breaches related to this failure to monitor. All Fidelity
Entities may be liable under count V for breaches related to the
failure to monitor. At the close of this case, judgment will
enter for Fidelity on the other theories under count I, as well
as count III.
SO ORDERED.

_/s/ William G. Young__
WILLIAM G. YOUNG
U.S. DISTRICT JUDGE

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Source: Frix Law Library, https://www.frixlaw.com/law-library/cases/10198525. Public record. Not legal advice.