401(k) Participants Can Be Prime Targets of Cross-Selling Efforts

Posted June 8th, 2020 by .

Categories: 401(k).

Participants in their company’s 401(k) plan have come to expect that their employer will protect their personal information from disclosure outside the plan. However, plan participants of Shell Oil’s 401(k) have filed a case in federal court in Galveston, Texas – Harmon v. Shell Oil Company – alleging Shell took no action to stop the plan’s recordkeeper, Fidelity, from using participants’ personal information to cross-sell nonplan financial products and services to them.

Plan recordkeepers are those invisible, behind the scene operators that a 401(k) plan hires to keep track of the plan’s financial records as well as the participants’ personal information such as contributions, withdrawals, account balances and changes to an account.  Recordkeepers also keep track of your social security number and other sensitive information personal to you, such as home and cellular phone numbers, work and personal email addresses, investment history, age, income, marital status, call center notes, and when you are nearing retirement.

The lawsuit exposes a little-known practice outside the retirement plan industry – plan recordkeepers using confidential plan participant information to proactively solicit those same participants to buy retail financial products and services outside the Plan for nonplan purposes. It is a practice that has endured despite long-standing industry knowledge that such practices are not in retirement plan participants’ best interests.

According to the complaint, Fidelity shared confidential information that it had gleaned in its role as plan recordkeeper with salespersons working at its sister companies, who then used this information to contact participants with the aim of selling Fidelity’s products and services. The allegations went on to say that Fidelity salespersons used this confidential information to identify individuals who were nearing retirement to pitch them rollovers into Fidelity IRAs.  This happened even though the participants likely are better off staying in the plan because IRA investors tend to pay higher fees than 401(k) investors.  But according to participants, the significant revenues from cross-selling motivated Fidelity to act in its best interest and contrary to the best interests of participants.  Shell’s ERISA breach was its failure to protect its employees’ confidential information from exploitation by Fidelity.  Defendants are seeking to dismiss the case.

The lesson here is be leery of plan recordkeepers who try to cross-sell investment products. There is a good chance that what they are selling is not in your best interest.  If you feel your employer has committed 401(k) mismanagement, one of our employment lawyers in San Diego, New York or Washington, D.C. can answer your questions and may be able to help.

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Charles Field

Charles H. Field is counsel in the San Diego office of Sanford Heisler, LLP, a national law firm with offices in New York, Washington, DC, San Francisco, and San Diego. He received his J.D. from McGeorge Law School in 1986 and his Bachelor of Arts in Liberal Arts from Indiana University-Indianapolis in 1977. Mr. Field also completed European legal studies at the University of Edinburgh and the University of Salzburg.


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