I don’t have too much to say about the specific details of this opinion in Kelley v. Fidelity Management Trust Company, out of the First Circuit yesterday on a putative class action against Fidelity related to the use of float income from plan transactions. This is particularly because it is primarily a technical decision, that involves following the money and the redemption and seeing how, in that specific context, the float income at issue did not become a plan asset, and thus cannot be the basis for a class action alleging breach of fiduciary duty.
That said, however, there are a couple of broader lessons to draw from it. First, the decision, when read in conjunction with Tussey and with the First Circuit’s own prior decisions on float related to insurance products, can be seen as blessing a certain float structure as one that will not give rise, simply on its own, to fiduciary liability under ERISA. Thus, any administrator planning to make use of float income will want to pay close attention to it in modeling their operation.
Second, however, is that the decision makes clear that it is only about whether the float income alone, in a context where the plan document allows for it, cannot support such a claim. The opinion, partially at the behest of the Department of Labor, goes out of its way to make clear that other theories of recovery where float income is at issue, such as theories that the use of the float income contradicted the plan’s terms themselves, are still open to litigation. As such, the opinion, while taking away one theory of liability, certainly invites the smarter minds in the plaintiffs’ class action bar to put on their thinking caps and look for a different theory to pursue recovery where float income is at play.