No. 15-1445 

________________________

IN THE UNITED STATES COURT OF APPEALS

FOR THE FIRST CIRCUIT

_________________________

TIMOTHY M. KELLEY, ET. AL.,

Plaintiffs-Appellants,

v.

FIDELITY MANAGEMENT TRUST COMPANY; FIDELITY MANAGEMENT 

& RESEARCH COMPANY; FIDELITY INVESTMENTS INSTITUTIONAL 

OPERATIONS COMPANY, INC.,

Defendants-Appellees.

_________________________

On Appeal from the United States District Court

for the District of Massachusetts, Case No. 1:13-cv-10222-DJC

_________________________

BRIEF FOR THE SECRETARY OF LABOR AS AMICUS CURIAE 

SUPPORTING PLAINTIFFS-APPELLANTS

_________________________

M. PATRICIA SMITH ELIZABETH HOPKINS

Solicitor of Labor Counsel for Appellate and 

Special Litigation

G. WILLIAM SCOTT DAVID ELLIS

Associate Solicitor for Trial Attorney 

Plan Benefits Security U.S. Department of Labor

200 Constitution Ave., N.W.,

Room N-4611

Washington, D.C. 20210

(202) 693-5688
i 

TABLE OF CONTENTS

QUESTION PRESENTED........................................................................................ 1

THE SECRETARY'S INTEREST............................................................................. 1

STATEMENT OF THE CASE.................................................................................. 2

A. Statutory Background................................................................................. 2

B. Factual Allegations..................................................................................... 4

C. Procedural Background .............................................................................. 6

SUMMARY OF ARGUMENT................................................................................. 8

ARGUMENT...........................................................................................................12

A. ERISA Prohibits Fiduciaries From Using Undisclosed Float Income 

Obtained Through Plan Administration for any Purpose Other Than to 

Benefit the ERISA-Covered Plan.............................................................13

i. The Department's Float Guidance.......................................................13

ii. The Amended Complaint Sufficiently Alleges that Fidelity Engaged 

in Self-Dealing and Acted Disloyally With Regard to the Float 

Income .................................................................................................16

iii. The District Court Incorrectly Focused on Whether the Float 

Accounts and the Income Derived From Those Accounts Were Plan 

Assets...................................................................................................19

B. Fidelity Acted as a Fiduciary With Respect to the Float Income............26

CONCLUSION........................................................................................................29

CERTIFICATE OF COMPLIANCE........................................................................... 

 

CERTIFICATE OF SERVICE .................................................................................... 
ii

TABLE OF AUTHORITIES

Cases:

Commissioner of Internal Revenue v. Keystone Consolidated Indus., 508 U.S. 152 

(1993)......................................................................................................................3

Donovan v. Bierwirth, 680 F.2d 263 (2d Cir. 1982) .................................................3

Faber v. Metro. Life Ins. Co., 648 F.3d 98 (2d Cir. 2011)......................................23

Gargano v. Liberty Intern'l Underwriters, Inc., 572 F.3d 45 (1st Cir. 2009) ............4

John Hancock Mut. Life Ins. Co. v. Harris Trust & Sav. Bank, 510 U.S. 86 (1993)

..............................................................................................................................19

Leigh v. Engle, 727 F.2d 113 (7th Cir. 1984)..........................................................25

Lowen v. Tower Asset Mgmt., Inc., 829 F.2d 1209 (2d Cir. 1987)....................2, 25

Massachusetts Mut. Life Ins. Co. v. Russell, 473 U.S. 134 (1985)...........................2

Merrimon v. Unum Life Ins. Co. of Am., 758 F.3d 46 (1st Cir. 2014)........... passim

Mertens v. Hewitt Assocs., 508 U.S. 248 (1993) ......................................................2

Mogel v. UNUM Life Ins. Co. Of Am., 547 F.3d 23 (1st Cir. 2008) .............. 24, 28

Reich v. Compton, 57 F.3d 270 (3d Cir. 1995).........................................................3

Secretary of Labor v. Fitzsimmons, 805 F.2d 682 (7th Cir. 1986) ...........................1

Tussey v. ABB, Inc., 746 F.3d 327 (8th Cir. 2014).............................................8, 22

Vander Luitgaren v. Sun Life Assurance Co. of Canada, 765 F.3d 59 (1st Cir. 

2014)........................................................................................................ 22, 23, 24

Statutes:
iii

Employee Retirement Income Security Act of 1974,

as amended, 29 U.S.C. § 1001 et seq:

29 U.S.C. § 1001 et seq. ............................................................................... passim

29 U.S.C. § 1001(b)................................................................................................2

29 U.S.C. § 1002(14)(A)........................................................................................3

29 U.S.C. § 1002(21)(A).............................................................................. passim

29 U.S.C. § 1002(34)..............................................................................................4

29 U.S.C. § 1104 .......................................................................................... passim

29 U.S.C. § 1104(a)(1)(A)............................................................................ passim

29 U.S.C. § 1104(a)(1)(B)............................................................................ passim

29 U.S.C. § 1106 .......................................................................................... passim

29 U.S.C. § 1106(a)(1)(D)............................................................................ passim

29 U.S.C. § 1106(b)(1)................................................................................. passim

Regulations:

DOL Advisory Opinion 93–24A (Sept. 13, 1993)........................................... passim

DOL Advisory Opinion 94-31A (Sept. 9, 1994).....................................................19

DOL Advisory Opinion 93–14A, 1993 WL 188473 (May 5, 1993).......................19

Field Assistance Bulletin 2002-3 (Nov. 5, 2002) ......................................... 1, 15, 24

Letter from Robert Doyle to Judith A. McCormick (Aug. 11, 1994).............. passim
1

QUESTION PRESENTED

Whether Fidelity, as trustee to numerous defined contribution pension plans 

covered by the Employee Retirement Income Security Act (ERISA), 29 U.S.C. § 

1001 et seq., engaged in self-dealing in violation of 29 U.S.C. § 1106, or breached 

its duty of loyalty in violation of 29 U.S.C. § 1104, by retaining and/or distributing 

to non-plan entities float income that accrued during participant distributions, 

where the trust agreement does not expressly permit this retention or distribution 

and Fidelity did not disclose it during the negotiation of the trust agreement.

THE SECRETARY'S INTEREST

This appeal presents important ERISA issues concerning the responsibilities 

of plan fiduciaries with regard to float income. As the head of the federal agency 

with primary responsibility for Title I of ERISA, Secretary of Labor v. 

Fitzsimmons, 805 F.2d 682, 692-93 (7th Cir. 1986) (en banc), the Secretary of 

Labor has a strong interest in ensuring that fiduciaries and service providers openly 

and fully disclose and negotiate the terms of any float income that accrues from the 

administration of the plan and the use of plan assets. The Secretary also has an 

interest in defending his longstanding guidance concerning float income and 

ensuring that fiduciaries and service providers fulfill their duties regarding this 

income. See generally Field Assistance Bulletin 2002-3 (Nov. 5, 2002), available 

at http://www.dol.gov/ebsa/regs/fab2002-3.html; Letter from Robert Doyle to 
2

Judith A. McCormick (Aug. 11, 1994), available at 

http://www.dol.gov/ebsa/regs/ILs/il081194.html; DOL Advisory Opinion 93–24A 

(Sept. 13, 1993), available at 

https://www.dol.gov/ebsa/programs/ori/advisory93/93-24a.htm. 

STATEMENT OF THE CASE

A. Statutory Background

ERISA is a remedial statute that was enacted to "protect . . . interests of 

participants in employee benefit plans and their beneficiaries" by setting forth 

"standards of conduct, responsibility, and obligation for fiduciaries of plans." 29 

U.S.C. § 1001(b). "The Act's legislative history indicates that the 'crucible of 

congressional concern was the misuse and mismanagement of plan assets,'

particularly self-dealing by plan managers." Lowen v. Tower Asset Management, 

Inc., 829 F.2d 1209, 1213 (1987) (quoting Massachusetts Mut. Life Ins. Co. v. 

Russell, 473 U.S. 134, 141 n. 8 (1985)). 

ERISA "defines 'fiduciary' not in terms of formal trusteeship, but in 

functional terms of control and authority over the plan" and its assets. Mertens v. 

Hewitt Assocs., 508 U.S. 248, 262 (1993) (citation omitted). Thus, the statute 

provides that "a person is fiduciary with respect to a plan to the extent [that person] 

exercises any discretionary authority or discretionary control respecting 

management of such plan or exercises any authority or control respecting 
3

management or disposition of its assets." 29 U.S.C. § 1002(21)(A) (emphasis 

added). 

ERISA imposes on plan fiduciaries the familiar trust-law duties of loyalty 

and prudence, which are among the "highest known to the law." Donovan v. 

Bierwirth, 680 F.2d 263, 272 n.8 (2d Cir. 1982). ERISA section 404 requires 

fiduciaries to act "solely in the interest of the participants and beneficiaries and . . . 

for the exclusive purpose of: (i) providing benefits to participants and their 

beneficiaries; and (ii) defraying reasonable expenses of administering the plan," as 

well as with the utmost prudence and care in their dealings with ERISA plans. 29 

U.S.C. §§ 1104(a)(1)(A), (B) (emphasis added).

Congress supplemented the fiduciary duties in section 404 by providing in 

section 406 a "categorical bar to certain types of transactions that were regarded as 

likely to injure the plan." Reich v. Compton, 57 F.3d 270, 275 (3d Cir. 1995)

(citing Commissioner of Internal Revenue v. Keystone Consolidated Indus., 508 

U.S. 152 (1993); additional citations omitted). As relevant here, ERISA section 

406(a)(1)(D) prohibits a plan fiduciary from causing the "plan to engage in a 

transaction, if he knows or should know that such transaction constitutes a direct or 

indirect . . . (D) transfer to, or use by or for the benefit of a party in interest,1or any 

 1 A "party in interest" encompasses numerous parties that have some relationship 

to the plan, including, as relevant here, the plan fiduciaries. 29 U.S.C. § 

1002(14)(A). 
4

assets of the plan." 29 U.S.C. § 1106(a)(1)(D) (emphasis added). And ERISA 

section 406(b)(1) prohibits a fiduciary from "deal[ing] with the assets of the plan in 

his own interest or for his own account." 29 U.S.C. § 1106(b)(1). 

B. Factual Allegations2

Fidelity Management Trust Company ("Fidelity Trust") acts as the trustee 

for numerous defined contribution retirement plans covered by ERISA. Appendix 

on Appeal ("App.") 21. In a defined contribution plan, plan assets are placed in 

one or more investments, at the direction of the participants in participant-directed 

plans, and the participants are then entitled to the value of their own investment 

accounts rather than any specific benefit amount. See 29 U.S.C. § 1002(34). This 

suit challenges the practices of Fidelity Trust and two other affiliated Fidelity 

entities, Fidelity Investments Institutional Operations Company, Inc. ("FIIOC"), a 

recordkeeper, and Fidelity Management & Research Company ("FMRC"), an 

investment company, with respect to redemption float income, which is income

earned when, at the request of a plan participant, Fidelity Trust redeems or sells 

shares in the plan participant's investment account (usually, mutual funds shares) 

and transfers the proceeds into interest-bearing accounts before distributing it to 

the participant.

 2 Because this case was disposed of by the district court at the motion-to-dismiss 

stage, we have taken the facts in the amended complaint as true, as this Court must. 

See Gargano v. Liberty Intern'l Underwriters, Inc., 572 F.3d 45, 48 (1st Cir. 2009).
5

Plaintiffs allege that, when an ERISA plan participant requested a 

distribution from his or her individual account in a Fidelity-managed plan during 

the relevant time period, the investment shares were sold and the proceeds were

placed in a redemption bank account (allegedly owned by and registered to Fidelity

Operations, although Fidelity disputes that it owned the accounts), then the funds

were moved to an interest-bearing account, usually overnight, then moved again, 

usually the following day, back to the redemption bank account to pay the 

participant. App. 25 (¶ 33). For electronic disbursements, the participant generally 

was paid the next day (after generating interest in the overnight account); for 

checks, float income was generated until the check was cashed. Id. Rather than 

distributing the interest that accrued overnight or over several days – the float 

income – to the participant's plan or the participant, Fidelity Trust used the income 

first to pay taxes, if any, then bank fees associated with the float program that were 

operating expenses associated with the plan for which Fidelity Trust allegedly was 

responsible, and then allegedly credited the remainder of the interest to the 

underlying mutual funds (so that it benefited all fund investors, not just the 

participant's plan). App. 26 (¶¶ 36, 38, 59, 60).

Plaintiffs allege that all three Fidelity entities were plan fiduciaries. Fidelity 

Trust was a fiduciary of the plans because, as trustee, it had authority and control 

over plan assets and management, including the authority to dispose of plan assets 
6

and to make distributions. App. 23 (¶27). FIIOC was a fiduciary because, as an 

agent for Fidelity Trust, it "established, managed and maintained" the redemption 

accounts, and used the interest income in these accounts to pay Fidelity Trust's 

bank fees and to credit the mutual funds with the remainder. Id. (¶28). FMRC was 

a fiduciary because it had control over the interest bearing accounts, which, 

according to plaintiffs, held plan assets, and exercised discretion in choosing how 

to invest these assets. Id. at 24 (¶ 29).

According to plaintiffs, the governing trust agreements said nothing about 

the existence of the float income. App. 22, 34. Instead, the trust agreements only 

identified and authorized three types of fees: "(1) an asset-based fee based on a 

percentage of plan assets held in a particular Plan investment, (2) an administrative 

fee that is a fixed dollar rate per plan participant (also known as a 'hard-dollar' 

payment), and (3) fees for individual participant services such as loans." App. 21. 

C. Procedural Background

Plaintiffs, ERISA plan participants, filed a putative class action against 

Fidelity in February 2013. Addendum ("Add.") 4. After the district court 

consolidated four pending cases, plaintiffs filed a consolidated complaint, which 

they amended twice. In the operative complaint for purposes of this appeal (the 

"amended complaint"), plaintiffs allege that Fidelity violated its fiduciary duties, 

including the duty of loyalty, 29 U.S.C. § 1104(a)(1)(A), by using float income 
7

generated during the redemption process to defray its own expenses, App. 26, 32

(¶¶ 36, 59), and by giving the float income to other Fidelity clients. App. 21, 26-

27, 32 (¶¶ 38, 60, ¶ 24). 

Fidelity moved to dismiss on numerous grounds, including that float income 

is not a plan asset, that Fidelity is not an ERISA fiduciary with regard to float, and 

that, even if the float income is a plan asset, Fidelity properly used float income for 

the benefit of the Plans to pay administrative fees accrued by third-party financial 

institutions. Add. 5.

The district court granted the motion to dismiss. Add. 6-16. The court 

focused on whether the float income is a plan asset. Add. 6 ("Plaintiffs' allegations 

rise and fall on the premise that float income is a plan asset."). The court noted 

that although ERISA contains no definition of "plan assets," the Department of 

Labor (DOL) has consistently stated that whether something is a plan asset

depends on "ordinary notions of property rights under non-ERISA law." Add. 7

(internal quotation marks and citation omitted). The court determined that, as a 

matter of property law, the plans "do not own the underlying assets of the mutual 

fund in which they invest" and only have "a property interest in the shares of the 

mutual fund in which the participant has invested." Add. 7-9 (internal quotation 

marks omitted). The court concluded that, because Fidelity owns the accounts that 

generated float income, that income is not a plan asset and consequently there is no 
8

violation of ERISA with regard to the float. Add. 6-14. In so holding, the district 

court relied on the Eighth Circuit's decision in Tussey v. ABB, Inc., 746 F.3d 327 

(2014), cert. denied, 135 S. Ct. 477 (2014), which found that this same float 

practice did not violate ERISA. The court noted that DOL has issued guidance 

saying that retention of float income is prohibited self-dealing unless it is 

disclosed, but the court declined to give weight to that guidance because, according 

to the court, it "assumes that plan assets have been transferred into the trust 

accounts and that the plan assets are the source of the float income." Add. 11.

The court also concluded that Fidelity is not an ERISA fiduciary when it 

comes to the float practices. Add. 14. The court reasoned that because Fidelity 

has complied with plan documents in processing withdrawals from the plan, it 

fulfilled its fiduciary duties. Id. at 15. "As a result," the court said, "Fidelity was 

no longer acting as a fiduciary" when it engaged in the float practice at issue. Id. 

If the plans wanted to make Fidelity responsible to pay the float to them or their 

participants, the court reasoned that the onus was on them to negotiate for this 

arrangement. Id. 

SUMMARY OF ARGUMENT

Fidelity Trust, a fiduciary to numerous defined contribution pension plans, 

engaged in prohibited self-dealing and acted disloyally by allegedly retaining float 

income generated from its administration of the plans and distributing such income 
9

to non-plan entities, because it allegedly failed to disclose the existence of such 

income and Fidelity Trust's governing trust agreements did not expressly authorize 

it to retain such income or use it for non-plan purposes. 

1. For 22 years, fiduciaries and service providers have been on notice 

that, in order to meet ERISA's requirements, they must fully disclose their float 

arrangements with ERISA-covered plans. Accordingly, the financial industry has 

adopted policies, procedures, and protections pursuant to the Secretary's 

longstanding and consistent guidance to ensure that the interests of ERISA-covered 

plans and their participants with respect to float income are protected. If this Court

affirms the district court's conclusion that ERISA fiduciaries and service providers 

may retain undisclosed float income because the float accounts are not plan assets, 

the regulatory float regime that has governed the financial industry for over two 

decades risks being upended.

2. Based on the allegations in the amended complaint, Fidelity Trust

violated its duties with respect to float income. As we read the operative 

complaint, it alleges that Fidelity Trust failed to comply with the Department's 

float guidance, and engaged in prohibited self-dealing and disloyal conduct by 

using float income that was generated from its disposition of plan assets during its 

fiduciary management of the plan in its own interest and for its own account. First, 

the complaint alleges that Fidelity Trust dealt with the disposition of the plans'
10

ownership interest in the mutual funds shares – the cash generated when Fidelity 

Trust sold the plan's mutual fund shares following a withdrawal request – in its 

own interest to generate float income that it did not distribute solely to the plans,

but instead used to pay its own expenses and for other third-parties. Second, 

Fidelity Trust, and FIIOC as its agent, allegedly used its discretionary 

administrative authority to cause the plans to transfer the proceeds from the 

disposition of the mutual funds shares (plan assets) to float accounts for its own 

use and for the benefit of other Fidelity clients or funds. These are prohibited 

transactions under ERISA sections 406(a)(1)(D) and (b)(1) because Fidelity 

allegedly did not disclose the existence of the float, and the governing plan 

documents did not expressly authorize it to retain the float or use it for non-plan 

purposes. Fidelity also violated its strict duty of loyalty under ERISA section 404 

by retaining the float to pay its own expenses and to benefit parties other than the 

plans, thereby failing to administer the plans solely in the interest of the 

participants and beneficiaries, and for the exclusive purpose of providing benefits 

to participants and beneficiaries and defraying reasonable plan expenses.

This is true whether or not the float accounts contain plan assets. Here, the 

mutual fund shares which Fidelity Trust allegedly used to generate the float 

income were indisputably plan assets. Section 406 prohibits a fiduciary from using 

plan assets during plan administration for self-dealing, which Fidelity has done 
11

under the facts alleged because it used the proceeds from the mutual fund sales to 

generate income for itself and for third parties without authorization in the plan 

documents to do so. Likewise, the strict duty of loyalty in ERISA section 404 says 

nothing about plan assets, and thus does not require that the float accounts contain 

plan assets. Without regard to whether the float accounts were or contained plan 

assets, Fidelity Trust violated this loyalty provision because, in allegedly using the 

mutual fund plan shares to generate income for itself and third parties while 

processing plan distributions, Fidelity Trust did not act solely in the interest of the 

plan participants and beneficiaries to pay their benefits and defray reasonable 

expenses. The district court's holding to the contrary was in error. 

3. The district court also clearly erred in holding that Fidelity Trust, the 

trustee to the plans at issue, was not a fiduciary with regard to the float income 

generated while it was making distributions to plan participants. Under ERISA's 

broad functional definition of fiduciary, Fidelity was a fiduciary with regard to its 

"disposition of [plan] assets," 29 U.S.C. § 1002(21)(A)(i) (emphasis added), when 

it redeemed or sold the plans' ownership interest in the mutual funds and 

transferred the proceeds to the interest-bearing float accounts. The district court's 

holding to the contrary makes no sense and, in fact, turns the fiduciaries' disclosure 

requirements on their head by saying that, if a plan trustee does not disclose in its 
12

governing agreement that it will retain float income, it may administer the plan in a 

disloyal or self-serving way. 

ARGUMENT

The amended complaint alleges that Fidelity Trust did not disclose the 

existence of float income, the parties did not negotiate or come to an agreement 

concerning float income, the trust agreements did not authorize Fidelity Trust's 

retention or diversion of float income, and Fidelity Trust did not provide the plans 

with sufficient information to understand this float income. Moreover, plaintiffs 

allege that, despite this lack of disclosure and agreement, Fidelity Trust exercised 

its administrative control over the redemption process and over the disposition of 

the plans' ownership interest in the mutual funds to generate float income and to 

pay itself and entities other than the plans from the float accounts. As we explain, 

these allegations sufficiently state claims that Fidelity Trust, a trustee to the plans,

violated ERISA's prohibitions on self-dealing and its requirement that fiduciaries

act with the utmost loyalty to plan participants and beneficiaries and for the sole 

purpose of paying plan benefits and defraying reasonable expenses. 
13

A. ERISA Prohibits Fiduciaries From Using Undisclosed Float Income 

Obtained Through Plan Administration for any Purpose Other Than to 

Benefit the ERISA-Covered Plan

i. The Department's Float Guidance

The DOL has issued three pertinent guidance documents concerning 

fiduciary duties for float income. These documents all take the position that an 

ERISA fiduciary engages in prohibited self-dealing and acts disloyally when it 

retains float income, unless the fiduciary disclosed sufficient information to enable 

the plan to make an informed decision with respect to the float arrangement, the 

plan has reviewed and agreed to the arrangement, and the arrangement does not 

permit the fiduciary to affect the amount of its compensation.

In the first document, the DOL responded to a letter from the Tennessee 

Department of Financial Institutions, which requested guidance concerning 

whether a non-depository Tennessee bank committed prohibited transactions under 

ERISA when it engaged in a "common industry practice," whereby "banks acting 

as agents or trustees for employee benefit plans earn interest for their own account 

from the 'float' when a benefit check is written to a participant until the check is 

presented for payment." DOL Advisory Opinion 93-24A, at *1 (Sept. 13, 1993), 

available at https://www.dol.gov/ebsa/programs/ori/advisory93/93-24a.htm. The 

DOL determined that "based on the facts described above, where a fiduciary (e.g. 
14

Trust Company) exercises discretion with regard to plan assets, its receipt of 

income from the 'float' on benefit checks under a repurchase agreement with a 

national bank in connection with the investment of such plan assets would result in 

a [prohibited] transaction described in ERISA section 406(b)(1)." Id.

In 1994, the DOL wrote a letter to a lawyer for the American Bankers 

Association to "clear up an apparent misunderstanding" concerning Advisory 

Opinion 93-24A expressed in an editorial by that organization. Letter from Robert 

Doyle to Judith A. McCormick (Aug. 11, 1994), available at 

http://www.dol.gov/ebsa/regs/ILs/il081194.html. In this letter, DOL stated that the 

prohibition on self-dealing with respect to float income was not limited to the 

specific facts described in Advisory Opinion 93-24A. The editorial had suggested 

that no prohibited transaction occurs when a fiduciary generates and keeps float 

income because the "amounts in such disbursement accounts may no longer be 

considered plan assets." Id. The DOL stated that the editorial "misses the 

fundamental principle," that "without regard to the status of the funds after they are 

placed in a disbursement or other account, a bank fiduciary's unilateral decision to 

handle plan assets in such a way as to benefit itself constitutes prohibited selfdealing." Id. The DOL also noted that "if a bank fiduciary has openly negotiated 

with an independent plan fiduciary to retain earnings on the float attributable to 

outstanding benefit checks as part of its overall compensation, then the bank's use 
15

of the float would not be self-dealing because the bank would not be exercising its 

fiduciary authority or control for its own benefit." Id.

In 2002, the Department issued Field Assistance Bulletin 2002-3 (Nov. 5, 

2002), available at http://www.dol.gov/ebsa/regs/fab2002-3.html. This document 

elaborates on the 1994 letter and provides additional guidance concerning the 

duties of fiduciaries and service providers with respect to float income. 

Specifically, the bulletin describes what a fiduciary needs "to consider in 

evaluating the reasonableness of an arrangement under which the service provider 

will be retaining 'float' and what information [] a service provider [is] required to 

disclose to plan fiduciaries with respect to such arrangements in order to avoid 

engaging in a prohibited transaction[.]" Id. at *1. The document then sets out 

steps that plan fiduciaries and service providers should take to ensure that float 

practices are adequately disclosed and reviewed.

3

 3 The document lists three primary duties with respect to float income for plan 

fiduciaries, related to their responsibility for conducting a prudent and competent 

review of float income, and three primary duties for a service provider to a plan, 

primarily related to fully disclosing to plan fiduciaries how float income is to be 

earned. Specifically, a fiduciary is required to: (1) review comparable providers to 

determine for whom float is credited, (2) review the circumstances under which 

float is earned (such as the inclusion of time limits for earning float income), and 

(3) review sufficient information to evaluate float as part of the total compensation 

to be paid for the services rendered under the agreement. Id. Similarly, a service 

provider is required to: (1) disclose the specific circumstances under which float is 

earned and maintained, (2) establish and adhere to time frames with respect to 

depository and redemptive float, and (3) disclose the rate and manner by which 

float is earned. Id.
16

Thus, all of this guidance, which has governed plan fiduciaries and service 

providers for over two decades, states the position that a fiduciary engages in 

impermissible self-dealing when it retains redemption float income without first 

obtaining the permission of the plan. Moreover, the second letter makes clear that 

the analysis does not depend on whether the float income is a plan asset. Instead, 

as explained below, the relevant question is whether, in exercising its fiduciary 

duties in making plan distributions, the fiduciary used shares owned by the plan to 

create float income to benefit itself.

ii. The Amended Complaint Sufficiently Alleges that Fidelity Trust 

Engaged in Self-Dealing and Acted Disloyally With Regard to the 

Float Income

Based on the allegations in the operative complaint, Fidelity Trust violated 

its duties with respect to float income. As we read the complaint and plaintiffs' 

brief, they allege that Fidelity Trust, and FIIOC as its agent, used its discretionary 

administrative authority to cause the plans to transfer the cash proceeds from the 

disposition of the mutual funds shares (plan assets) into interest-bearing accounts 

and then used this float income to pay administrative fees for which it was 

responsible and then to benefit the mutual funds.

4 Plaintiffs' primary argument is 

 4

 The district court also seems to have understood the complaint this way. See

App. 9 (noting that the complaint alleges that "[w]hen a withdrawal request is 

made, the mutual fund shares are redeemed and the proceeds are transferred to" 

accounts registered to Fidelity). In their brief in this Court, plaintiffs assert that 

"when Fidelity, as Trustee for the Plans, redeems the mutual fund shares . . . [t]he 
17

that Fidelity engaged in prohibited self-dealing. Plaintiffs allege that Fidelity Trust 

dealt with the assets of the plans in its own interest and for its own account by 

defraying its own expenses via float income that was generated from its 

administration of the plans. App. 34 (¶¶ 70-71). The amended complaint 

specifically alleges that Fidelity Trust "(1) did not disclose the float income, (2) did 

not negotiate for extra compensation in the form of the float income, or provide the 

Plans with information sufficient to understand the Defendants’ compensation, and 

(3) had discretion to use the float income to pay themselves excessive 

compensation." App. 34 (¶ 72). These allegations, if proven, establish that: (1) 

Fidelity Trust, as a fiduciary to the plans, "deal[t] with the assets of the plan[s] in 

[its] own interest or for [its] own accounts," 29 U.S.C. § 1106(b)(1); and that (2) 

Fidelity, as a fiduciary to the plans, caused the plans to engage in a transaction that 

it knew or should have known constituted a "direct or indirect" "transfer to, or use 

by or for the benefit of, a party in interest [i.e., Fidelity], of any assets of the 

plan[s]," 29 U.S.C. § 1106(a)(1)(D). 

 

registered investment company that issued the shares will deliver the cash 

redemption price the following day to Fidelity as Trustee of the Plan," and then 

Fidelity Trust (together with FIIOC, acting as Fidelity Trust's agent) transfers these 

cash proceeds to the interest bearing accounts, Corrected Brief of PlaintiffsAppellants at 4. Based on these allegations, there is no relevance to the fact that 

the underlying assets of the mutual funds are not plan assets under ERISA sections 

3(21)(B) and 401(b)(1), 29 U.S.C. §§ 1002(21)(B), 1101(b)(1). If the allegations 

were that the float income was earned directly by the mutual fund before the plan 

cashed out shares, then ERISA sections 3(21)(B) and 401(b)(1) would govern and 

there would be no prohibited transactions.
18

There is no dispute that the plans' ownership interest in the mutual funds 

(i.e., the mutual fund shares) constituted a plan asset, as the district court 

acknowledged. Add. 8-9 (the plan "has a property interest in the shares of the 

mutual fund in which the participant has invested") (internal quotation marks and 

citation omitted). Plaintiffs allege that Fidelity Trust, the plans' trustee, and 

FIIOC, the trustee's agent, unilaterally used their authority over the redemption 

process to earn undisclosed float for Fidelity and other Fidelity clients, rather than 

for the sole benefit of the plans to which they owed a duty of undivided loyalty, 

These allegations, if true, establish prohibited transactions under ERISA sections

406(a)(1)(D) and (b)(1), and it was incumbent upon Fidelity to demonstrate an 

applicable exemption, which, unsurprisingly, it did not do at the motion-to-dismiss 

stage.

ERISA also requires that a fiduciary act solely in the interest of the 

participants and beneficiaries, and for the exclusive purpose of providing benefits 

to participants and beneficiaries and defraying reasonable expenses of 

administering the plan. 29 U.S.C. § 1104(a)(1)(A). Under the facts alleged, 

Fidelity Trust did not do so. Plaintiffs have alleged that Fidelity Trust used float 

income generated through its administration of the plans to defray its own 
19

expenses and to benefit other Fidelity clients and funds, not solely to benefit the 

plans themselves and to pay the plans' reasonable expenses.

5

 App. 32 (¶¶ 59-60).

iii. The District Court Incorrectly Focused on Whether the Float 

Accounts and the Income Derived From Those Accounts Were Plan 

Assets

In granting the motion to dismiss, the district court held that, largely because 

the interest-bearing accounts were registered to Fidelity, the float accounts and the 

float income at issue in this case do not constitute plan assets. Add. 6-7.

6

 The 

court reasoned that "[a]t base, Plaintiffs' allegations rise and fall on the premise 

that float income is a Plan asset." Add. 6. While plaintiffs incorrectly assert that 

the case turns on the float accounts and income being plan assets and erroneously 

 

5

 Fidelity Trust contests that it used the float for its own interests because, 

according to Fidelity, it did not retain any of the income, but instead used it to pay 

expenses for which the plans were responsible and distributed the rest to the 

mutual funds whose shares generated the income. Memorandum in Support of 

Defendants' Motion to Dismiss Plaintiffs' Second Amended Consolidated 

Complaint at 18. This was not the basis of the district court's decision, however. 

In any event, this is essentially a factual dispute about which the Secretary takes no 

position. The Secretary's argument is based solely on the facts alleged in the 

amended complaint.

 

6

 ERISA contains no general definition of "plan asset." John Hancock Mut. Life 

Ins. Co. v. Harris Trust & Sav. Bank, 510 U.S. 86, 89 (1993). The courts and the 

DOL have consistently taken the view that the determination of plan asset status is 

rooted in "ordinary notions of property law." See Merrimon v. Unum Life Ins. Co. 

of Am., 758 F.3d 46, 56 (1st Cir. 2014), cert. denied, 135 S. Ct. 1182 (2015); DOL 

Advisory Opinion 93–14A, 1993 WL 188473, at *4 (May 5, 1993); DOL Advisory 

Opinion 94-31A (Sept. 9, 1994), available at 

http://www.dol.gov/ebsa/programs/ori/advisory94/94-31a.htm. 
20

state that the DOL guidance has consistently taken the position that float income 

derived from plan distributions is a plan asset, see Brief for Plaintiffs-Appellants, 

at 14-15, in fact, the Secretary does not agree that this issue is dispositive.

7

As the DOL explained in 1994, "without regard to the status of the funds 

after they are placed in a disbursement or other account, a bank fiduciary's 

unilateral decision to handle plan assets in such a way as to benefit itself 

constitutes prohibited self-dealing." Letter from Robert Doyle to Judith A. 

McCormick (Aug. 11, 1994) (emphasis added). See also DOL Advisory Opinion 

93–24A (Sept. 13, 1993) (concluding that the general rules concerning the 

segregation of plan contributions from an employer's general assets "have no 

application to the question of whether a plan has an interest in an administrative 

account when plan assets are transferred to the account in support of an 

outstanding benefit check"). In other words, a fiduciary can breach its duties under 

ERISA even assuming the float income is not a plan asset because both section 

406(a)(1)(D) and section 406(b)(1) prohibit a fiduciary, such as a trustee, from 

using plan assets for self-dealing. Fidelity Trust has done so under the facts 

alleged here because it used its authority over the process of redeeming the plans' 

 7 If this Court determines that plaintiffs have waived any argument that Fidelity 

violated its duties even if the float itself is not a plan asset, the Secretary urges the 

Court to reserve the issue that we address in the brief, i.e., whether Fidelity, in the 

absence of an express agreement about float, has engaged in prohibited 

transactions and acted disloyally in administering the plan in a way that generates 

float income that is not fully credited to the plan and its participants.
21

shares in the mutual funds, which all agree are plan assets, to generate income for 

itself and for third parties.

The district court determined that there can be no fiduciary breach unless the 

float income is a plan asset. But the language of ERISA is not so narrow. Instead, 

the statute broadly prohibits any "indirect" use of plan assets to benefit itself, 29 

U.S.C. § 1106(a)(1)(D), or any activities where a fiduciary "deal[s]" with plan 

assets "in [the fiduciary's] own interest or for his own account." 29 U.S.C. § 

1106(b)(1). Here, regardless of whether the float accounts themselves held plan 

assets, Fidelity at a minimum indirectly used plan assets (the cash proceeds of the 

plans' mutual fund shares) to benefit itself and third parties and thus violated both 

provisions on the facts alleged.

Moreover, plaintiffs also alleged that Fidelity violated its fiduciary duty of 

loyalty. ERISA requires a fiduciary to "discharge his duties with respect to the 

plan solely in the interest of the participants and beneficiaries," and "for the 

exclusive purpose of (i) providing benefits to participants and beneficiaries; and 

(ii) defraying reasonable expenses of administering the plan." 29 U.S.C. § 

1104(a)(1). This provision says nothing about plan assets and thus does not 

require that the float account be a plan asset to find a violation. Again, without 

regard to whether the interest-bearing accounts were or contained plan assets,

Fidelity Trust violated this loyalty provision because, in allegedly using plan 
22

shares to generate income for itself and third parties while processing plan 

distributions, Fidelity Trust did not act solely in the interest of the plan participants 

and beneficiaries to pay their benefits and defray reasonable expenses. 

In holding to the contrary, the district court relied heavily on the Eighth 

Circuit's Tussey decision. Without mentioning the Secretary's float guidance or 

addressing the effect of non-disclosure, the Tussey court held that the same type of 

redemptive float was not a plan asset because the float accounts were owned by 

Fidelity for the beneficial interest of the underlying investment options, and, on 

this basis alone concluded that Fidelity did not breach any obligations with regard 

to the float. 746 F.3d at 339-40. By focusing on whether the float accounts are 

plan assets rather than whether the float was disclosed and agreed upon by the 

parties, the Eighth Circuit made the same error as the district court below. 

The district court also relied on two recent First Circuit cases, Merrimon v. 

Unum Life Ins. Co. of Am., 758 F.3d 46 (1st Cir. 2014), and Vander Luitgaren v. 

Sun Life Assurance Co. of Canada, 765 F.3d 59 (1st Cir. 2014). These cases 

addressed whether life insurance proceeds retained by an insurance company 

constituted plan assets where the beneficiary was given a "checkbook" from the 

administering life insurance company, and earned a set rate of interest under plan 

terms until the amount of life insurance benefits was drawn down by the 

beneficiary. In both cases, this Court held that these retained assets did not 
23

constitute plan assets, and thus, the interest earned on these assets (above the 

amount paid to the beneficiaries) did not belong to the plan. This Court correctly 

determined that, because the plan participants were sufficiently informed at the 

outset in plan documents that the life insurance benefits could be paid in this 

manner, and the plan participants therefore received what they had been promised, 

the arrangement did not run afoul of ERISA's self-dealing prohibitions. Merrimon, 

758 F.3d at 56; Vander Luitgaren, 765 F.3d at 63.8 

In contrast, in this case, plaintiffs allege that Fidelity Trust did not disclose 

its float practices and procedures and the parties did not agree to this. While 

Fidelity argues that the trust agreements essentially permitted it to process and 

approve withdrawals in whatever way it chose, see Add. 15, and the district court 

concluded that Fidelity acted in accordance with the trust agreements apparently by 

processing distributions in the manner and timeframes specified, Add. 15, there 

was no district court finding that Fidelity disclosed or openly negotiated its float 

program or that the trust agreements authorized such a float program. Instead, the 

 8

 The Secretary took this same position in an amicus curiae brief filed in response 

to an invitation from the Second Circuit in Faber v. Metro. Life Ins. Co., 648 F.3d 

98 (2d Cir. 2011). There, the Secretary argued that the ERISA fiduciaries 

effectively discharged their ERISA duties under the plan when they furnished the 

beneficiaries with the checkbook as promised by the plan terms, and they did not 

retain plan assets by holding and managing the assets that backed the so-called

"Total Control Account" (i.e., the retained asset account), Secretary of Labor's 

Amicus Curiae Letter Brief in Response to the Court's Invitation at 1, 5-6, 

http://www.dol.gov/sol/media/briefs/faber%28A%29-02-17-2011.pdf. The Second 

Circuit agreed. Faber, 648 F.3d at 106.
24

amended complaint alleges that Fidelity failed to disclose or negotiate the float 

program and the trust agreements do not expressly mention float, much less permit

Fidelity to operate and maintain a float program. App. 22, 34.

Because the governing plan documents do not address float or permit 

Fidelity Trust to retain float income generated during plan distributions, this case is 

not governed by this Court's decisions in Merrimon or Vander Luitgaren. Instead, 

this Court's other retained asset decision, Mogel v. UNUM Life Ins. Co. Of Am., 

547 F.3d 23, 26 (1st Cir. 2008), is much more on point. In Mogul, this Court held 

that plan participants stated a viable claim for fiduciary breach where an insurance 

company was not expressly permitted to retain and earn interest on life insurance 

proceeds, but instead was required to pay out the benefits in a lump sum. Id. 

Similarly, the DOL's longstanding guidance explains why float income 

earned through plan administration may not be retained by a trustee or other 

fiduciary or plan service provider where the governing plan documents do not 

expressly authorize such a float program. See Field Assistance Bulletin Field 

Assistance Bulletin 2002-3 (plan fiduciaries and service providers must identify 

"the specific circumstances under which float will be earned and retained," and

"when the float period commences . . . and ends," and the "rate of the float or the 

specific manner in which such rate will be determined"); Letter from Robert Doyle 

to Judith A. McCormick; DOL Advisory Opinion 93–24A. The district court erred 
25

in distinguishing the DOL's guidance on the basis that the DOL simply 

"presume[d], however, the answer to the question at issue here – whether the funds 

in the Fidelity account are, in fact, 'plan assets.'" Add. 11. To the contrary, the 

DOL guidance did not rely on or answer that question and the district court's focus 

on whether the float accounts hold plan assets misses the point. Instead, the proper 

inquiry under the guidance is whether governing plan documents expressly permit 

float income generated through plan administration to be retained by a fiduciary or 

service provider. Here, because the governing plan documents allegedly do not

expressly permit Fidelity to retain float income for itself or others, plaintiffs have 

stated a plausible claim for fiduciary breach.

The contrary argument ignores ERISA's protective purposes and the 

congressional intent that sections 406(a)(1)(D) and 406(b)(1) "should be read 

broadly in light of Congress' concern with the welfare of plan beneficiaries." 

Leigh v. Engle, 727 F.2d 113, 126 (7th Cir. 1984); see also Lowen v. Tower Asset 

Mgmt., Inc., 829 F.2d 1209, 1213 (2d Cir. 1987). The district court in this case did 

the exact opposite: it ignored Fidelity Trust's alleged disposition of plan assets and 

the fact that Fidelity Trust caused transactions that, at the very least, indirectly 

resulted in the use of plan assets for a party in interest. This was legal error. Not 

only does it interpret ERISA's remedial provisions too narrowly, it also disregards 

DOL's float guidance, which has protected plan participants for 22 years. There is 
26

simply no compelling reason for the district court to exclusively focus on one 

moment in the float program in determining whether the float accounts contain 

plan assets, while completely ignoring Fidelity Trust's role in disposing of plan 

assets that ultimately generated the float income. 

B. Fidelity Trust Acted as a Fiduciary With Respect to the Float Income

The district court's alternative holding that Fidelity Trust, a trustee to the 

Plans, was not a fiduciary with respect to float also fails on the same basis, since 

Fidelity Trust allegedly exercised discretion over plan assets outside the bounds of 

the plan documents, which did not expressly permit Fidelity's float program. See

Add. 14-15 (relying on cases where the interest arrangement was disclosed); cf.

Letter from Robert Doyle to Judith A. McCormick (Aug. 11, 1994) ("Of course, if 

a bank fiduciary has openly negotiated with an independent plan fiduciary to retain 

earnings on the float attributable to outstanding benefit checks as part of its overall 

compensation, then the bank's use of the float would not be self-dealing because 

the bank would not be exercising its fiduciary authority or control for its own 

benefit.").

Here, plaintiffs allege that Fidelity Trust is a trustee, App. 21-22 (¶¶ 22-23, 

25), that it entered into agreements with the plans to hold plan assets, App. 21 (¶ 

22), and that it had broad powers to invest, retain, sell, exchange or otherwise 

dispose of assets of the trust fund, App. 22-23 (¶¶ 25, 27-28). The district court 
27

recognized that, "[i]n light of its authority to manage or dispose of Plan assets, 

[Fidelity] is a fiduciary of the Plans." Add. 3.

9

 And the district court was correct 

in that respect, because any entity that exercises authority or control with respect to 

management or disposition of plan assets is a fiduciary. 29 U.S.C. §

1002(21)(A)(i). 

Thus, Fidelity was a fiduciary with respect to the Plans' redemptions, 

including the accrual of float income because it allegedly "exercise[d] 

discretionary authority or discretionary responsibility in the administration of [the 

plans]" by directing and controlling, from start to finish, the process of the Plans' 

redemptions. 29 U.S.C. § 1002(21)(A)(iii). Moreover, Fidelity was a fiduciary 

because it "exercise[d] any authority or control respecting the management or 

disposition of [the plans'] assets" when Fidelity redeemed or sold the plans' 

ownership interest in the mutual fund investments and transferred cash to the 

interest-bearing float accounts. 29 U.S.C. § 1002(21)(A)(i) (emphasis added).

The district court nonetheless decided that Fidelity Trust was not a fiduciary 

with respect to float practices because it made distributions in accordance with the 

timetable set out in the governing documents, and, because the trust agreements 

 9 The court did not specifically address the fiduciary status of the other two 

Fidelity entities. As set forth in the complaint, the fiduciary status of FIIOC, which 

is alleged to be acting wholly as an agent of Fidelity Trust, is derivative of the 

fiduciary status of Fidelity Trust. The fiduciary status of FMRC, on the other 

hand, appears to turn on whether the proceeds of the mutual fund shares are plan 

assets while in the float accounts. App. 23-24 (¶¶ 28-29).
28

did not say anything about float income; the court determined that such income 

was therefore beyond the scope of Fidelity's fiduciary duties. Add. 15. This makes 

no sense and, in fact, turns the DOL's disclosure requirements on their head by 

saying that, if a fiduciary does not disclose in its governing agreements that it is 

administering a plan in a disloyal or self-serving way, it may do so. Cf. Mogel, 

547 F.3d at 26 (UNUM's contention that it was not acting as a fiduciary with 

regard to interest it earned on retained asset account that it did not disclose "rests 

on quicksand"). 

Thus, the Secretary fundamentally disagrees with the district court's 

conclusion that the onus was on the participants to negotiate for a different float 

arrangement. The DOL's float guidance specifically and correctly places that 

responsibility with the fiduciaries and service providers to disclose float, and the 

allegation in this case is that the plan sponsor and participants were never in a 

position to negotiate float because it was never disclosed. 
29

CONCLUSION

For the foregoing reasons, the Secretary respectfully requests that the Court 

reverse the decision of the district court dismissing the case.

Respectfully submitted,

M. PATRICIA SMITH

Solicitor of Labor

G. WILLIAM SCOTT

Associate Solicitor

Plan Benefits Security Division

ELIZABETH HOPKINS

Counsel for Appellate 

And Special Litigation

s/ David Ellis

DAVID ELLIS

Attorney

U.S. Department of Labor

200 Constitution Ave. N.W.

Rm. N-4611

Washington, DC 20210

 (202) 693-5688

 Fax: (202) 693-5610
CERTIFICATE OF COMPLIANCE WITH RULE 32A

I hereby certify that this brief complies with Federal Rule of Appellate 

Procedure 32(a)(7)(B). It has a total of 6999 words, excluding the parts of the brief 

exempted by Fed. R. App. P. 32(a)(7)(B)(iii). This brief complies with the 

typeface requirements of Fed. R. App. P. 32(a)(5) and the type style requirements 

of Fed. R. App. P. 32(a)(6). It has been prepared in a proportionally spaced 

typeface using Microsoft Word 2010 in Times New Roman font size 14.

Dated: September 21, 2015 s/ David Ellis

David Ellis 

Attorney
CERTIFICATE OF SERVICE

I hereby certify on this 21st day of September, 2015, I electronically filed 

the foregoing amicus curiae brief with the Clerk of the Court for the United States 

Court of Appeals for the First Circuit by using the CM/ECF system. I certify that 

all participants in the case are registered CM/ECF users and that service will be 

accomplished by the CM/ECF system.

 s/ David Ellis

 David Ellis

 Attorney