Boeing settlement underscores advisers' 401(k) responsibility

As excessive-fee suits are poised to move down market, advisers should pay attention to teachings of 401(k) suits such as Boeing's

Aug 27, 2015 @ 4:29 pm

By Greg Iacurci

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Details of the provisional settlement reached yesterday in the lawsuit involving The Boeing Co.'s 401(k) plan are scarce, but the settlement speaks volumes about what advisers should expect with regards to future defined contribution plan litigation.

The suit in question, Spano et al. vs. The Boeing Co. et al., pits plan participants against fiduciaries of one of the largest 401(k) plans in the country, the $46 billion Boeing Company Voluntary Investment Plan. Plaintiffs alleged plan administrators breached their fiduciary duty through excessive recordkeeping and investment fees.

Jerry Schlichter, managing partner at Schlichter, Bogard & Denton and lead attorney for plaintiffs, declined to provide specifics of the settlement because unspecified details still need to be ironed out by the parties. A Boeing spokesman said that the terms are confidential.

Even absent any specifics, though, attorneys contend that Boeing agreeing to settle underscores the growing power of the tort bar in 401(k) litigation, as well as principles advisers should take away from this and other excessive-fee suits.

“The ERISA bar didn't really deal in the class-action world [a few years ago], and now I think it's very clear people that service plans have got to be concerned about the IRS, SEC, DOL and now there's a fourth entity that's not going away, and that's the tort bar,” said Marcia Wagner, principal at the Wagner Law Group.

Most excessive-fee 401(k) suits to date have involved multibillion-dollar plans — those of Cigna Corp., Edison International, ABB and International Paper, for example.

In February, Mr. Schlichter won his largest settlement in an excessive-fee suit, for $62 million, from Lockheed Martin Corp., which has close to $6 billion in its 401(k) plan.

“I think when there are big headline cases like this it raises awareness in a way that other 401(k) cases haven't,” said Grant Easterbrook, co-founder of new 401(k) startup Dream Forward Financial and former financial-services analyst at Corporate Insight.

As these types of suits log more successful settlements and become more commonplace, Ms. Wagner said that these types of suits are starting to move down market to plans in the tens of millions of dollars in assets.

Retirement-plan advisers have been relatively insulated from direct involvement in excessive-fee suits thus far, because multibillion-dollar plans are more in the realm of national consulting firms, such as Callan Associates or Towers Watson, rather than the small- and mid-sized 401(k) market.

Ms. Wagner said that she has heard of the movement down market anecdotally and experienced it in her own practice. Some of her clients are in various stages of negotiation, meaning attorneys are “poking around” and gauging possibilities to sue, though none have actually moved to the lawsuit stage yet.

“I think it's a brave new world — the bar is heightened,” Ms. Wagner said. “People might say [litigation] is only for the big boys — like ABB and Boeing — but no. They're the standard bearers, but the principles here trickle down to all.

“There are only so many big plans,” she added.

What this means for advisers is that they must demonstrate vigilance with respect to monitoring the reasonableness of all plan fees, ensuring procedural due diligence and making sure that all decisions are documented and justifiable, attorneys said.

“For the advisers out there, this is just another case to mention in their quarterly meetings [with clients], and highlights the point about monitoring and having justification for [investment] options,” said David Levine, principal at Groom Law Group.

Preliminary approval of the Boeing settlement will likely come in September or October, at which time details of the settlement will be made public, Mr. Schlichter said.

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