The settlement reached this month in the excessive-fee suit involving Wal-Mart Stores Inc.'s 401(k) plan is on a par with other recent settlements.
Wal-Mart Stores and Merrill Lynch agreed to pay a combined $13.5 million to settle the class-action lawsuit brought by participants in the retailer's $14.9 billion 401(k) plan over alleged excessive investment fees and other alleged violations under the Employee Retirement Income Security Act.
The two companies also agreed to remove certain types of retail mutual funds from Wal-Mart's 401(k) plan and consider offering more index funds as investment options.
Wal-Mart, Bentonville, Ark., has the nation's largest private-sector 401(k) plan in terms of the number of participants — 1.2 million — and the case “was closely followed” by plan executives and others in the 401(k) community, said Richard D. Glass, president of Investment Horizons Inc., Pittsburgh, whose focus includes development of retirement plan communications.
While the settlement “seems par for the course” in terms of similar cases, Mr. Glass said it's “a tiny amount (of money) compared to all the fees paid for active management” through the investment choices offered by the plan.
“I thought these guys (participants) had a great case,” he said. “I was shocked they settled for $13.5 million.”
In 2010, General Dynamics Corp., Falls Church, Va., and Fiduciary Asset Management agreed to pay a combined $15.15 million to settle a class-action lawsuit alleging General Dynamics violated its fiduciary responsibilities by allowing Fiduciary Asset Management to charge excessive fees to participants in two 401(k) plans, whose combined assets totaled $6 billion.
Also in 2010, Caterpillar Inc., Peoria, Ill., agreed to pay $16.5 million to settle allegations that included charges the company violated its fiduciary duty by offering investment options with excessive management and other fees and failed to disclose administration costs for four 401(k) plans then with combined assets of $6.35 billion.
In the Wal-Mart settlement, the payments would go to the Wal-Mart Profit Sharing and 401(k) Plan under the settlement given preliminary approval Dec. 5 by Judge Gary A. Fenner in U.S. District Court in Kansas City, Mo.
Wal-Mart agreed to pay $3.5 million, while New York-based Merrill Lynch, the plan's trustee and record keeper and a unit Bank of America Corp., Charlotte, N.C., agreed to pay $10 million.
Other terms of the settlement seek to further a “goal to offer investment options with fees that are reasonable,” the preliminary agreement states.
Under the terms, Wal-Mart and Merrill Lynch agreed the plan's retirement committee, for a period of two years, would:
- add “when appropriate” low-cost passively managed funds besides the two index funds the plan now offers — a BGI Russell 1000 Index Trust and a BGI Barclays Russell 2000 Index Trust. The trusts had, respectively, $2.5 billion and $712 million in assets as of Jan. 31, 2011, according to the plan's form 5500 form. (BlackRock acquired BGI in 2009.)
continue to remove retail mutual funds that charge participants 12b-1 fees and funds that provide revenue sharing or that pay fees to Merrill Lynch as trustee or record keeper;
retain an independent fiduciary to provide recommendations on selection and monitoring of investment options, and review any consultant and investment adviser for conflicts of interest;
offer participants web-based tools for comparing investment options' costs, such as through the Securities and Exchange Commission's cost calculator; and
make available to participants web-based investment education resources, including a retirement planning calculator.