Lockheed Martin sued for 401(k) plans allegedly 'leaching' retirement savings

Current and former employees of Lockheed Martin have sued the company and fiduciaries of three retirement plans, alleging the plans’ use of an in-house investment manager violated federal law due to poor investment selection and to self-dealing.

“Contrary to what loyal fiduciaries would have done, defendants ran a leaching operation that extracted value from plaintiffs’ retirement savings,” said the lawsuit filed March 19 in a U.S. District Court in Greenbelt, Md.
Instead of choosing independent investment professionals,

Lockheed, through its wholly owned subsidiary, Lockheed Martin Investment Management Company, applied a do-it-yourself approach that led to underperforming investments, said the complaint in the case of Fezer et al. vs. Lockheed Martin Corp.

“They managed the 401(k) plans that they offered their employees themselves; created home-grown, ineffective private investment funds; selected and maintained those non-listed funds as investment options within their 401(k) plans despite years of under-performance; and paid themselves excessive and unreasonable fees using the 401(k) plans’ assets,” the lawsuit said.

Plaintiffs accused Lockheed Martin of violating ERISA’s duty of prudence, due to the allegedly poor investment performance, and the duty of loyalty, due to allegations that Lockheed put its corporate interests ahead of participants’ interests.

The three 401(k) plans – for salaried employees, for union employees and for certain employees in Lockheed business units – had aggregate assets of $51.4 billion as of Sept. 30, according to the Pensions & Investments annual report of the 1,000 largest retirement funds. The Lockheed DC plans had the fourth largest assets among DC plans tracked by P&I.

The plaintiffs wrote that more than 140,000 beneficiaries are covered by the plans.

They focused their ire on the plans’ proprietary target-date series, which they described as “chronically under-performing.”

The fiduciaries could have selected target-date series from independent investment that cost less and performed better, the plaintiffs wrote.

Instead, defendants “selected the in-house TDFs as the only TDFs available as investment options within their 401(k) plans, and made those underperforming TDFs the default investment options for their employees’ retirement savings,” the lawsuit said. “They maintained the in-house TDFs within their 401(k) plans despite years of poor performance.”

The lawsuit said Lockheed should have hired an independent manager of the plans.

“A loyal and prudent fiduciary would have selected a professional fund manager with a track record of success, rather than trusting its nepotistically-selected stepchild, with its history of underperformance,” the lawsuit said. “Defendants’ self-interest in the fees generated from the in-house TDFs affected their decision to continue offering those funds,” the lawsuit said. “Yet defendants provided participants with materials that painted a rosy view of the in-house TDFs as ‘optimal’ investments.”

A company representative did not respond to a request for comment.