General Dynamics, a $31.9 billion defense contractor, and Fiduciary Asset Management Co. (Famco), an investment consultant, have agreed to a $15.15 million settlement in a class action lawsuit that alleged participants in General Dynamics' 401(k) plans were provided with misleading information about fees.
In a statement released jointly by the two companies and law firm Schlichter Bogard & Denton, General Dynamics and Famco say that they complied with ERISA, the law that governs 401(k) plans, but decided to settle the lawsuit because “it is in their best interest.”
The lawsuit, Will v. General Dynamics, involved 401(k) plans with $6 billion in assets and about 85,000 participants.
According to the statement, the $15.15 million settlement will be funded by General Dynamics' insurers, Famco's insurers, “and other sources.” General Dynamics will also employ an outside consultant to review parts of its 401(k) plans. General Dynamics will also enhance the fee disclosures made to plan participants, continue to pay for the 401(k) plans' record-keeping on a per-participant basis, and credit the plans for volume discounts provided by investment managers.
The General Dynamics settlement must be approved by the court and also by an independent fiduciary that represents the interests of the 401(k) participants, according to the statement.
A spokesman for General Dynamics refused to comment on the tentative settlement.
The suit against General Dynamics and Fiduciary Asset Management was one of more than a dozen that the St. Louis-based Schlichter law firm filed against large companies in 2006 and 2007. All the lawsuits alleged 401(k) participants were paying excessive fees for their retirement plans or had been misled about the costs of their plans.
Gregory Ash, a partner who specializes in employee benefits at Midwestern law firm Spencer Fane Britt & Browne, notes that three 401(k) fee cases have now been settled, and another case, Tibble v. Edison International, was decided last month in the plaintiffs' favor.
“Overall, plaintiffs' lawyers are starting to get some traction but it's still a very narrow, uphill road for them,” Ash says. “They are reaping some benefit for their efforts. But the courts have established some pretty significant hurdles for them to overcome to win on the merits. And there have also been a number of dismissals of other lawsuits that have favored defendants.”
Caterpillar, another of the companies sued by Schlichter, settled that lawsuit last November for $16.5 million. And in April, Beverly Enterprises, a Little Rock, Ark.-based nursing home operator, agreed to pay $6.5 million to settle a 401(k) fee suit brought by another law firm.
There have been court verdicts in two other 401(k) cases. Last month, a court found that California utility Edison International had improperly used retail shares of mutual funds, rather than cheaper institutional shares, for three of the options in its 401(k) investment line-up. In 2007, in Hecker v. Deere, Deere prevailed. That case was appealed all the way to the U.S. Supreme Court, which refused in January to review the decision.
For more about Caterpillar's settlement, read Caterpillar Settles 401(k) Fee Lawsuit.
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Susan Kelly
Susan Kelly is a business journalist who has written for Treasury & Risk, FierceCFO, Global Finance, Financial Week, Bridge News and The Bond Buyer.
