401K Fees in the Spotlight, With $62M Lockheed Settlement & Edison Class Action Case Before the Supreme Court
Lockheed Martin Corp. has agreed to pay $62 million to settle a lawsuit accusing its employee 401(k) retirement plan of charging excessive fees to participants. As part of the settlement, the defense company will take part in monthly assessments of its plan, offer participants low-cost funds, and get bids from at least three outside companies that know how to deal with administrative matters involving big company retirement plans.
There are 100,000 participants and $27 billion of assets in Lockheed’s retirement plan. The civil case accused the company of not acting wisely when managing the retirement savings of employees, charging high fund fees, keeping a significant quantity of participants’ savings in low-yield funds, and paying record-keeping fees that were excessive.
Lockheed denied the allegations. Even though it is settling, the company is not admitting wrongdoing.
The Employee Retirement Income Security Act states that companies that sponsor 401(k) plans have a fiduciary obligation to act in employees’ best interests. There are currently over a dozen settled or pending cases contending that certain U.S. companies have not. Allegations have included the failure to watch out for excessive fees, directing employee savings into investment products overseen by affiliate companies, and perferencing costly retail mutual funds over less expensive options.
This week, the U.S. Supreme Court heard arguments in Tibble v. Edison, a class action securities case also alleging excessive investment fees, this time charged to participants of Edison International’s 401(k) plan. The complaint claims that the company breached its duty to act in employees’ best interests over six fund options. Pricier mutual fund options were purportedly selected even though nearly identical funds that charged lower fees could have been picked instead.
Edison contends that based on ERISA’s statute of limitations, participants of a 401(k) plan may only sue over funds that have been in a plan for no more than six years. The company argued that it therefore should not be held liable for three of the funds at issue, which have been part of the 401(K) plan since 1999. The 401k excessive fees lawsuit was filed just eight years ago.
A district court and an appeals court sided with Edison. The plaintiffs appealed.
After listening to oral arguments, the Supreme Court justices suggested that they will make 401(k) plans monitor the investment options they offer on a periodic basis. They also indicated that they would revive claims contending that Edison’s 401(k) plan should have transferred investors from the three funds’ retail class shares into institutional class shares that were identical but came with lower fees.
Lockheed Martin to pay $62 million to settle 401k lawsuit, Fortune, February 20, 2015
Employee Retirement Income Security Act, Department of Labor
Supreme Court to hear case that could impact your 401(k) fees, CNN, February 24, 2015
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