Lockheed’s 401(k) Fee Settlement Tab: $62 Million
In what was described as the largest settlement of a 401(k) excessive fee claim ever against a single employer, a revenue-sharing lawsuit that had sought $1.3 billion in damages was settled for considerably less.
Plaintff’s attorneys Schlichter, Bogard & Denton announced Feb. 20 that it reached a $62 million settlement on behalf of Lockheed Martin employees and retirees in the 401(k) excessive fee case, Abbott v. Lockheed. The settlement had been announced in December, but the terms were just announced.
The settlement also includes a range of non-monetary relief provisions to ensure compliance with the settlement and enhance the 401(k) plan for the benefit of Lockheed Martin employees and retirees.
A motion for approval of the settlement was filed Feb. 20 by the parties in the Court of Chief Judge Michael Reagan of the U.S. District Court for the Southern District of Illinois.
The complaint was one of several filed by the Schlichter law firm on Sept. 11, 2006. In this case, plaintiffs alleged that Lockheed Martin imprudently managed and invested plan participants’ retirement savings in funds that charged excessively high expense ratio fees that diminished returns, and that participants were charged “excessive” recordkeeping fees. Furthermore, they alleged that Lockheed Martin allowed an unreasonably high level of participants’ retirement assets to be held in low-yielding money market funds of State Street Bank & Trust, with whom Lockheed Martin had multiple business relationships.
Lockheed Martin denied all of the allegations and contended it complied in all respects with the law.
In the settlement, Lockheed Martin has agreed to initiatives designed to strengthen its 401(k) plan as part of the non-monetary relief. According to a press release from the Schlichter law firm, Lockheed has agreed to file annually with the court a notice that assures compliance with the settlement. The notice includes:
monthly evaluations on the average portion of the plan’s stable value fund that is allocated to money market instruments;
- monthly evaluations on the average portion of the plan’s company stock funds that are allocated to cash-equivalents; and
- monthly reports obtained from Morningstar summarizing the characteristics of the two funds with respect to performance, among other metrics.
Additionally, Lockheed Martin must receive bids from at least three third-party record keeping services for the Lockheed Martin savings plan. The record keepers providing bids must currently be serving 401(k)s with assets over $5 billion, and the bids and the final selection of record keeper must be reported to the court. Moreover, Lockheed Martin will offer funds that have the lowest expense ratios as applicable, and will consider the use of collective investment trust or separately managed accounts.
There are more than 100,000 participants in the Lockheed Martin retirement savings plan, the fifth largest corporate 401(k) in the United States, with more than $27 billion in assets.