General Electric has settled a long-running lawsuit over the funds in its 401(k) plan for $61 million, one of the biggest settlements in ERISA litigation history.
Court records filed last Friday disclosed the amount, which the company had agreed to in August but which previously had not been released publicly. The dollar award is the biggest for a case centering on a plan’s use of in-house funds, court records state.
If the settlement is approved by the court, it will end six years of litigation against GE, which plaintiffs alleged breached its fiduciary duties by putting its own investment options on the $30.3 billion plan’s menu and retaining them for more than a decade. The class includes participants who were in the plan as far back as Sept. 26, 2011.
“This settlement is the largest ever in an ERISA case alleging a retirement plan improperly offered proprietary funds,” the recent court records state. The agreement was reached just before the court was to issue a decision on requests for summary judgment filed by both sides. As much as a third, $20.3 million, will go to attorneys' fees.
Although the plan had low-cost index funds, it also included GE’s line of five mutual funds. The plan’s participants accounted for the majority of assets in those funds, and the company had a financial incentive to keep them invested, the plaintiffs said.
The funds, which at the time were sponsored by GE Asset Management, were the only actively managed investment options available to participants, and they did not perform as well as options available from third parties, according to court records. The plan sponsor nonetheless kept the funds on the menu while it was in the process of selling its $110 billion asset management business to State Street in 2016, which the plaintiffs alleged was a measure to help inflate the price of that business.
In the past few years, settlements of 401(k) lawsuits have generally increased, ranging from as low as about $200,000 to as much as $40 million, reflecting 75 cases between 2020 and 2022, said Bonnie Treichel, chief solutions officer at Endeavor Retirement.
“When we look at settlements, this one jumps off the page for the proposed settlement amount, which still must be approved by the court,” Treichel said in an email.
However, it’s notable that the GE 401(k) plan, at more than $30 billion in assets as of 2021, is one of the bigger 401(k)s in the country. Additionally, the plaintiffs had initially estimated damages of about $700 million when the litigation started in 2017, so $61 million is comparably smaller, Treichel said.
“The thing to keep in mind might be that even though this is in the mega, mega market, the outcomes of these types of cases do trickle down to best practices for all plan sizes,” she said.
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