Participants in Boeing Co.'s 401(k) plan won't see a large windfall from the company's proposed agreement to pay $57 million, the second highest amount in 401(k) class-action lawsuits, to settle allegations of excessive investment-related fees and mishandling of oversight of two investment funds.
The settlement, pending court approval, includes up to $19 million in attorneys' fees for the law firm of Schlichter, Bogard & Denton LLP, which represented the participants and which might seek reimbursement of up to $1.85 million in litigation expenses. That amount might appear excessive, but the litigation lasted nine years.
Participants in the $46.2 billion Boeing 401(k) plan will be better off in the long run because of the improvements, as will participants represented in dozens of other 401(k) lawsuits filed over the past 10 years. These suits have served to hold plan sponsors accountable for fiduciary oversight to participants, even in cases such as the Boeing settlement that included denial of any wrongdoing or loss to participants.
Participants have little recourse other than through the court system to challenge perceived mishandling of their 401(k) plans — from excessive fees to company stock — and try to bring about accountability. Corporate 401(k) plans are better today for participants than they were a decade ago, before much of the class-action litigation was filed.
Many plan sponsors not subject to lawsuits or fiduciary breach allegations have gotten the message to scrutinize investment fund choices, record-keeping arrangements and other investment-related services, and even plan design for conflicts and issues they need to understand and deal with to meet fiduciary standards.
In particular, there is greater recognition of the drag that fees impose on long-term investment performance, resulting in efforts to keep fees as low as possible, especially focusing on institutional rather than retail rates. Participants have gained far more in lower investment fees and improved investment fund choices and plan design than the tally of cash settlements suggests.
There is greater recognition of the risk of including company stock in 401(k) plans, and many companies have eliminated that investment choice or limited the amount of company stock a participant can accumulate.
Among other areas, plans now generally have better default funds. Companies have moved to age-appropriate, diversified target-date funds, rather than relative low-yielding fixed-income vehicles.
The litigation in general shows some attorneys who practice law under the Employee Retirement Income Security Act of 1974 have shortchanged participants by falling short in counseling sponsors on their fiduciary duty, plan design and investment terms. Similarly, some investment consulting firms have failed in advising on investment policy implementation. These failings need correction.
Plan sponsors and other fiduciaries must do more to uphold standards of fiduciary care, especially with defined contribution plans serving increasingly as the only retirement program at most workplaces that offer such an employee benefit. In the plans, participants bear all the risk of investing. Participants are responsible for deciding the level of their contributions necessary to meet their retirement income objectives.
The Department of Labor has been slow to provide guidance that might help avoid resorting to the legal system to bring accountability for fiduciary duty. For example, the DOL took more than 30 years after the creation of the 401(k) plan in 1978 to recognize the need for fee-disclosure rules, accomplished in 2012.
The new transparency, spurred indirectly by class actions, has given participants a clearer picture of the fees they pay for investment funds and related services. The disclosure requirement has helped plan sponsors and other fiduciaries better identify investment-related fees and improve their understanding of them, as well as make better decisions on use of investment-related services.
The Labor Department should do more to examine grievances to see what other recourse participants and plans sponsors might have to resolve allegations of fiduciary breaches. The department should examine its enforcement standing and ability to intervene to police plans and their vendors and bring about resolution of disputes.
The department should recognize that class-action litigation represents a failure to understand the full extent of fiduciary duty. To that end, it should convene seminars on fiduciary duty and best practices, bringing together plan sponsors, ERISA and class-action attorneys and investment consultants.
It should provide guidance to help define and explain the continuing fiduciary duty plan sponsors have as declared by the U.S. Supreme Court in ruling last May in the Tibble et al. vs. Edison International et al. case. The Edison International case shows interpretation of fiduciary duty over fund selection and fees still appears ambiguous. A coalition of employer groups — the ERISA Industry Committee, American Benefits Council, U.S. Chamber of Commerce, Business Roundtable and National Association of Manufacturers — intervened in the case, filing a brief defending use of retail mutual funds in 401(k) plans.
Settlements can serve as models for other 401(k) plans.
Wal-Mart Stores Inc. in a settlement in 2012, for example, included an agreement to add to its now-$21.7 billion 401(k) low-cost passively managed funds, remove retail mutual funds that charge 12b-1 or revenue-sharing fees, and offer web-based tools for comparing investment fees and providing investment and retirement planning education resources.
By seeking to hold plan sponsors accountable, some plan participants and their attorneys have helped improve the ability of 401(k) plans to secure retirement income outcomes for all. n
