Lockheed settles suit on 401(k) fees

🕐 3 min read

Michael A. Fletcher (c) 2014, The Washington Post. Lockheed Martin on Tuesday reached a tentative settlement with participants in its massive 401(k) plan who sued the defense contractor in federal court for allegedly allowing excessive fees to needlessly erode the value of the plan.

The provisional settlement is the latest development in a series of cases filed by St. Louis attorney Jerome Schlichter that are reshaping the options companies offer employees for investing the trillions of dollars held in 401(k) retirement accounts. With the continuing demise of traditional pension plans, 401(k)s have become the backbone of the nation’s private retirement system.

In the complaint against Lockheed, workers and retirees accused the company of offering retirement investment options that in some cases cheated them of potential returns and, in others, charged needlessly high fees. The result, they said, was that plan participants missed out on hundreds of millions of dollars in investment returns that could bolster their retirement income.

“At best, these fee structures are complicated and confusing when disclosed to Plan participants,” the complaint said. ” At worst, they are excessive, undisclosed, and illegal.”

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Lockheed has denied the allegations.

With $26 billion in assets and more than 150,000 participants, Lockheed’s retirement plan is among the nation’s largest. If the settlement is completed, it is likely to push companies to do more to ensure that their 401(k)s are managed efficiently and that the administrative fees, which are difficult to discern for many participants, are as low as possible.

“This whole area has been off in a dark closet and shining the light of day on these practices has resulted in reductions of fees not only for companies that have been in litigation but throughout the industry,” Schlichter said in an interview.

Schlichter has settled suits he filed against a number of large firms in recent years alleging similar mismanagement of retirement plans. Among the settlements were cases against International Paper, Caterpillar and General Dynamics.

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Earlier this year a federal appeals court upheld a lower-court ruling that ABB, a power and automation firm, paid excessive fees in its retirement plans — money that plaintiffs alleged subsidized other corporate banking costs.

Schlichter, who also brought the ABB case, said certain themes appear in each of his complaints. Among them, he said, is that “an employee in a large retirement plan should not be paying retail” investment fees. And it is the employer’s responsibility to make sure that is the case.

He said companies either actively used the 401(k) fees to offset other costs or paid little attention to how their retirement plans were managed because it does not affect their bottom lines.

Schlichter said he began filing the suits six years ago after hearing complaints from workers who had no idea how much they were paying to money management firms through their 401(k) plans. After studying the issue for nearly two years, he went about filing cases.

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Early next year, the U.S. Supreme Court is scheduled to hear an appeal of a case that Schlichter filed involving retirement-fund fees charged by Edison International, a California utility. The company’s workers were enrolled in retail mutual funds when identical and cheaper institutional funds were available, the plaintiffs alleged.

A lower court had thrown the complaint out, saying the statute of limitations for contesting investment options added to a retirement plan had expired. But in October the high court agreed to hear the case.

U.S. District Court Judge Michael Reagan said details of the proposed settlement in the Lockheed case have not been divulged to the court. He scheduled a telephone conference for Jan. 8, during which he said he intends to set deadlines for approving the proposed settlement.

Robert is a Fort Worth native and longtime editor of the Fort Worth Business Press. He is a former president of the local Society of Professional Journalists and was a freelancer for a variety of newspapers, weeklies and magazines, including American Way, BrandWeek and InformatonWeek. A graduate of TCU, Robert has held a variety of writing and editing positions at publications such as the Grand Prairie Daily News and InfoWorld. He is also a musician and playwright.

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