Boeing Lands a Deal in 401(k) Lawsuit

A day after saying it planned to fight a decades-old 401(k) lawsuit in court, the Boeing Company has struck a deal.

Announcement of the “provisional settlement” comes the day a trial was scheduled to begin in the nine-year-old case, though terms weren’t disclosed. According to The Wall Street Journal, a court order indicates that the parties are expected to update the court on details of the talks next month and set a timeline for seeking final approval.

In the suit, the plaintiffs (represented by St. Louis-based law firm Schlichter Bogard & Denton LLP) alleged that the excessive fees were imposed on the plan through a combination of hard-dollar payments and hidden revenue-sharing transfers, and that the defendants breached their fiduciary obligations by not disclosing the fee arrangements.

Additional claims were added to the lawsuit in 2007, including charges that the defendants:

  • offered mutual funds rather than leveraging the plan’s asset size to convince investment managers to set up less expensive separate accounts;
  • failed to capture millions of dollars in income streams for the benefit of participants, including sweep fees, rebates from securities lending and earnings from the foreign currency exchange market; and
  • included actively managed fund options rather than concentrating on less expensive and better performing passive funds.

The class action also criticizes Boeing for including options to invest in the company’s own stock and in a money-losing technology-sector fund.

Citing court documents, the Journal reports that the plaintiffs say that Boeing employees paid $103 per person for administrative services in 2005, when a plan of its size should have charged no more than $42, according to an expert hired by the plaintiffs. Between 1997 and 2005, the plan overpaid for recordkeeping and administrative services by $35.4 million, according to the hired expert. In 2007, the company reduced its per-employee fees to $32 after putting out a bid for a new contract, court filings show, according to the report.

Citing Labor Department numbers, the Journal notes that Boeing’s $44 billion 401(k) plan is the second-largest in the nation (after IBM Corp.).

According to the report, of the 18 ERISA suits the Schlichter firm has filed since 2006, eight settlements have resulted in more than $214 million in payouts (with $70 million of that going to the law firm); four have been dismissed; and six are still pending (including Tibble V. Edison, parts of which were ruled on by the U.S. Supreme Court earlier this year).

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