Boeing settles 401(k) suit for near-record $57 million

The large settlement underscores the need to ensure reasonable fees and asset classes for investments, and that the overall value of services matches up with cost

Nov 5, 2015 @ 2:21 pm

By Greg Iacurci

The Boeing Co. has agreed to pay $57 million as part of a class action settlement agreement reached with plaintiffs in a nearly decade-long 401(k) suit.

The settlement, which also included non-monetary provisions, would be the second-largest dollar figure among settlements in similar 401(k) suits if it is ultimately approved by the court. Lockheed Martin Corp. agreed to the largest-ever settlement in an excessive-fee suit, to the tune of $62 million, in February.

The Boeing suit, Spano et al. vs. The Boeing Co. et al., was brought in 2006, alleging breach of fiduciary duty under the Employee Retirement Income Security Act of 1974 due in part to excessive recordkeeping and investment management fees in the now-$46 billion Boeing Company Voluntary Investment Plan.

(Click here to read the full settlement)

Parties involved in the suit reached provisional settlement in August, but terms of the settlement weren't available at that time. A hearing on preliminary approval of the settlement by the U.S. District Court for the Southern District of Illinois hasn't yet been announced.

As part of the non-monetary provisions, Boeing must retain an independent investment consultant to review whether a technology-sector fund is appropriate for the Boeing 401(k) plan. The plan currently has a technology fund, which fiduciaries used to replace a predecessor tech fund that the suit alleged to be too risky.

OTHER SETTLEMENTS

Firms such as Caterpillar Inc., International Paper Co. and Cigna Corp. have also settled in 401(k) suits, for $16.5 million, $30 million and $35 million, respectively. These suits, including Boeing and Lockheed, have been led by plaintiff's attorney Jerry Schlichter, managing partner at Schlichter, Bogard & Denton.

Following the filing of the original complaint against Boeing in 2006, Boeing facilitated two different bids for record-keeping services, after not having done this for several years, and fees “came down dramatically” as a result, Mr. Schlichter said.

Boeing also currently has a mix of collective trust funds and separately managed accounts, having gotten rid of mutual funds, which plaintiffs alleged were too costly.

“Fees matter,” Mr. Schlichter said. “Advisers should be looking at the variety of investment vehicles available, and that depends on plan size and other factors. But to say that they should only look at one kind of alternative is not carrying out their duty to operate the plan for the exclusive benefit of participants when there are others available.”

LESSONS FOR ADVISERS

“I think the takeaway [for advisers] is this is not a one-size-fits-all exercise," said Jason Roberts, CEO of the Pension Resource Institute. "Prudence is going to be determined by each particular plan and its particular participant population."

Participant demographics dictate whether investment options such as a technology fund are appropriate for a plan, Mr. Roberts said. For example, it may be more prudent to offer a highly paid, young, investment-savvy workforce a riskier asset class requiring a higher degree of education to understand, whereas more straightforward, “plain-vanilla” asset classes are likely better-suited for a factory-floor workforce that may not be as knowledgeable about investments, he added.

To some, the dollar amount of Boeing's settlement isn't as significant as the threat Boeing's settlement generally could mean for 401(k) advisers.

“To me, it's not the number so much, because most of my plan clients don't look anything like Boeing,” Jon Chambers, managing director at SageView Advisory Group, said. “It's more the fact that companies like Boeing are choosing to settle rather than litigate, which I see as an encouragement for other plaintiff firms to bring cases against smaller plans.”

Marcia Wagner, principal at The Wagner Law Group, said settlements such as these underscore the need for advisers and fiduciaries to demonstrate appropriate due diligence and prudence with respect to 401(k) plan decisions.

“Things have to be justified and justifiable,” Ms. Wagner said.

“I think advisers, plan sponsors and recordkeepers and everyone in the industry need to understand what the fees are, what the investments options are, and whether, frankly, appropriate services are being provided for those fees,” Ms. Wagner added.

In contracts between an adviser and plan sponsor, advisers should be clear of what they are and are not responsible for in their service to a client, to know where their liability stops and starts, Ms. Wagner said. Otherwise, there's potential to be on the hook for any such 401(k) settlement.

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