One participant's investment losses don't generate
recoveries or legal fees sufficient to interest many
plaintiffs' lawyers in filing suit, so often, a class
certification is sought in lawsuits challenging plan investments as
a breach of fiduciary duty. One of the problems faced in trying to
get a class certification is that 401(k) plan participants are
invested in the challenged investment for differing time periods
and will have had different investment experience.
After the U.S. Supreme Court limited class actions in its
decision involving WAL-MART, pension professionals wondered how
this would impact 401(k) litigation.
In Abbott v. Lockheed Martin Corporation, the
Court of Appeals for the Seventh Circuit sent a message that 401(k)
class actions can still be pursued when it overruled the district
court and determined that participants could sue as a class
to recover investment losses they claimed resulted from an
imprudent plan investment option.
The Lockheed Martin 401(k) plans are among the largest in the
United States. Lockheed Martin's plans offered a stable value
fund (SVP), which is intended to provide higher returns than money
market funds with stability provided through principal and interest
guarantees. Participants who invested in the Lockheed SVP sued
Lockheed and its internal investment manager claiming the fund was
an imprudent investment because it was too heavily weighted in
money market funds and wasn't designed to keep up with
inflation. (Stable value funds are typically a mix of short-term
and intermediate –term investments.)
In other words, the Lockheed plaintiffs didn't argue
that it was imprudent because it was risky, but rather that the
selected fund was too conservative to produce a robust
Plaintiffs' counsel defined the class as 56,000 participants
invested in the SVP between September 11, 2000 and September 30,
2006 whose SVP units under-performed relative to a designated
investment index. (Thus, anyone who might have benefited from
investing in the SVP or didn't actually invest in the SVP was
excluded.) This class definition didn't lock the plaintiffs
into using that index to measure damages. Plaintiffs have claims of
excessive fees that will also be pursued as a class as part of this
case.. We await a decision on the merits.
The Lockheed Martin decision should be contrasted with a decision recently issued by a U.S. district court
in Washington, which ruled that Weyerhaeuser Company defined
benefit plan participants had no standing to recover damages as a
result of plan losses from an aggressive investment program.
The Weyerhaeuser court said the participants had suffered no
individual harm, since in a defined benefit plan the plan sponsor
must make up losses.
The participants, however, were permitted to pursue equitable
relief relating to alleged fiduciary violations. This could
potentially result in an order compelling a different investment
policy, or even removing the current investment fiduciaries. The
U.S. Supreme Court has also permitted surcharge of fiduciaries,
which could involve restoring losses to the trust, in appropriate
situations. Again, we await a decision on the merits.
The Lockheed and Weyerhaeuser decisions have
implications far beyond the facts at issue.
Plans with underperforming investments and high fees face the
risk of large litigation recoveries and court directives about
investments. While plan sponsors have prevailed in most of the
401(k) suits that went to trial, they haven't won all of them
my blog post on the ABB case and there have been expensive
settlements of some others. And even though the Weyerhaeuser
decision didn't authorize participants to seek monetary relief
for losses, the equitable relief described above might restore
losses to the trust.
Plan sponsors and other fiduciaries who want to reduce their
exposure should consider that the cost of retaining professional
advisers to assist them in fulfilling their fiduciary
responsibilities well are relatively small in comparison to the
recoveries or settlements that could result from failing to meet
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
To print this article, all you need is to be registered on Mondaq.com.
Click to Login as an existing user or Register so you can print this article.
Unfortunately, reasonable accommodation for employees in the workplace continues to be the source of significant litigation and even today we continue to see outrageous examples of employers behaving badly.
A former teacher at Bodwell High School has learned a valuable lesson from the B.C. Human Rights Tribunal— it is not discriminatory for an employer to offer child-related benefits to only employees with children.
We are now beginning to see reported cases involving charges and subsequent fines laid against employers for failing to provide information, instruction and supervision to protect a worker from workplace violence.
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).