After battling in court for nine years, Boeing has agreed to pay $57 million to settle a class-action lawsuit that alleged the company's 401(k) retirement plan charged employees excessive administrative fees and should have offered different investment options.
The case was just about to go to trial in August when the two sides reached a settlement agreement. Today they filed a joint motion before Judge Nancy Rosenstengel in U.S. District Court for the Southern District of Illinois asking her to approve the settlement.
"This settlement is a reasonable approach to avoid the additional expense of continued litigation," said Tony Parasida, a Boeing senior vice president of human resources and administration, in a statement sent to employees. "It's not an admission of wrongdoing, and Boeing maintains that it has prudently managed and overseen the VIP [Voluntary Investment Plan] at all times."
Companies such as Boeing have been shifting away from defined-benefit pension plans in recent years in favor of defined-contribution 401(k) plans. But under that system, workers bear the investment risk, and it can be complicated choosing investment options and figuring out which ones offer the lowest fees.
401(k) Fees
St. Louis attorney JeromeSchlichter, who filed the case against Boeing in 2006 on behalf of several of the company's workers and retirees, said he was motivated after watching his mother collect his father's monthly pension benefit after his dad died. His father had worked as an aircraft mechanic for the federal government.
"She would not have been able to navigate through the market or try to figure out fees or investments or things like this, but she didn't have to," Schlichter said.
Schlichter has specialized in cases charging companies with breaching their fiduciary duties by offering employees retirement plans that charge excessive fees. In July, a judge approved a $62 million settlement with Lockheed Martin in a caseSchlichterfiled on behalf of Lockheed workers and retirees that alleged that company's 401(k) plans charged employees fees that were too high. Cases against companies such as Northrop Grumman and the banking firm BB&T are still pending.
Few people take the time to figure out what fees and expenses they are being charged in their retirement plans, but lately there has been more public attention to the issue because those fees can eat up a significant chunk of retirement savings over time.
In the statement to employees, Boeing said that once the settlement is approved by the judge, the fund will be distributed among workers who participated in the VIP between 2000 and 2006. About $21 million in attorneys' fees and expenses will be deducted from the settlement amount.
Boeing said the amount that employees receive will depend on the investment mix in their retirement accounts during those years.
Bringing Costs Down
Schlichter said that after his clients brought the lawsuit against the company, Boeing made key changes to its retirement plans. Bloomberg Business earlier this year ranked Boeing's VIP second in terms of generosity among large companies' 401(k) plans, just behind ConocoPhillips.
"After we filed the case, Boeing took many of the steps that we said should have been taken before filing to improve the plan and benefit employees and retirees," Schlichter said.
Those steps include getting competitive bids for services such as record-keeping, which Schlichter said reduced costs significantly.
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