Lockheed Martin has settled an employee lawsuit for failing to disclose its portfolio managers’ excessively high fees and underperforming funds within the company’s 401(k) program.
The Bethesda, Md., defense contrasctor agreed to put money directly into employees’ 401(k) plans and compensate former workers to offset the retirement program’s excessive fees which dampened returns, and will attempt to keep future fees down, according to a Reuters story on Friday.
The company will also pay for concealing how portfolio managers invested too conservatively within its “stable value” fund, causing it to underperform.
In the lawsuit, the plaintiffs claimed that the Stable Value Fund was administered as a money market fund. “Plaintiffs submit that the SVF was imprudent because it should have had no more than 5% of its assets invested in money market funds instead of the 50% to 99% that was actually invested,” the lawsuit says. “The SVF’s return was so poor that it did not beat inflation by a sufficient margin to provide a meaningful retirement asset. Plaintiffs contend that, although the SVF was low-risk and did not lose its value, mere preservation of principal was not the Fund’s sole objective.”
Plaintiffs also claimed that Lockheed Martin breached its fiduciary duty “by failing to monitor and determine the reasonableness of fees that [investment manager] State Street received from the assets of [the company’s] 401(k) plans and by allowing State Street to receive unreasonable compensation for its services.”
The lawsuit claimed Lockheed Martin and its investment management company failed their duty “to regularly monitor all revenue sharing to ensure that compensation paid directly or indirectly for plan services, such as administration and record-keeping, were reasonable.”
Attorneys at law firm Schlichter Bogard & Denton who represented the roughly 108,000 plan participants reportedly touted the settlement as the “largest ever” in a case alleging excessive fees in 401(k) litigation, Reuters wrote. While Lockheed reportedly denied wrongdoing, the case was settled through mediation to avoid a trial originally slated to begin in December.
Documents for the case, Abbott et al v. Lockheed Martin Corp et al, in the U.S. District Court, Southern District of Illinois, reportedly show that legal fees may total up to one-third of the settlement amount, or $20.67 million, according to Reuters.
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