Participants in the American Airlines Inc. 401(k) Plan, Fort Worth, Texas, have reached a tentative $22 million settlement in a class-action lawsuit that alleged fiduciary duty breaches under ERISA, according to a proposed settlement document.
In the case of Main et al. vs. American Airlines Inc. et al., participants argued that the 401(k) plan managers breached their fiduciary duties by retaining investment options from American Beacon Advisors "when superior alternative investments were available from other fund managers not affiliated with American Airlines," the settlement document said.
"Plaintiffs alleged that American Airlines had a financial interest in American Beacon and that American Airlines defendants favored American Beacon funds as investment options to the detriment of the plan and participants," the document said.
American Beacon Advisors is a defendant, and it will pay part of the $22 million settlement.
Participants sued in a federal District Court in Fort Worth, Texas on April 15, 2016. The proposed settlement, filed July 7, must be approved by the court. The 401(k) plan had $7.05 billion in assets as of Dec. 31, 2015, according to the latest Form 5500 filed with the Department of Labor.
"The funds at issue in the lawsuit are no longer in American's 401(k) lineup," said Matt Miller, a company spokesman, in an email. "Today, American has a robust 401(k) plan with a streamlined menu of attractive investment options."
American Airlines' parent AMR Corp. sold American Beacon in 2008 but retained a 10% equity stake in the firm. AMR subsequently sold its remaining stake in 2015. American Beacon "is no longer the plan's investment adviser," and American Beacon funds "are no longer investment options in the plan," the settlement document said.
The document said the 401(k) plan retained 13 of 14 American Beacon investment options until the second half of 2015. These investments were removed after AMR "fully divested from American Beacon in 2015," the document said.
After AMR divested its stake in American Beacon, the 401(k) plan "overhauled the plan's investment lineup," the document said. "The new lineup replaced American Beacon funds with lower-cost options."
The participants had argued that they would have "realized tens of millions of dollars more in investment returns, net of fees, between 2010 and 2015 had defendants replaced the American Beacon funds with prudent alternatives available in the marketplace," the settlement document said.
Participants maintained that the plan could have saved money by offering collective investment trusts and separate accounts, the document said. Since October 2015, the plan has offered both options. The proposed settlement affects an estimated 103,000 participants.
The proposed settlement was filed by plaintiffs' attorneys Kendall Law Group and Nichols Kaster.