Lockheed Martin Corporation office in Crystal City, Virginia, USA
There’s been an uptick in 401(k) mismanagement lawsuits in the past year, and now Lockheed Martin is being sued by current and former employees. The suit alleges that the aerospace and defense company used underperforming target-date funds (TDFs) with high fees in its 401(k) plan, and that Lockheed chose those funds for its own benefit.
Last week, participants in three Lockheed Martin retirement plans totaling around $50 billion in assets—$47.2 billion in the salaried plan, $2.1 billion in the bargaining plan, and $267 million in the capital plan—filed a proposed class-action lawsuit, Fezer et al v. Lockheed Martin Corporation et al, in the U.S. District Court of Maryland. These retirement plans manage assets for around 140,000 plan participants, and according to the complaint, they have lost out on “hundreds of millions of dollars” since 2019 because of Lockheed’s decision to use high-cost and poorly performing target-date funds from a wholly owned subsidiary that provides investment management services.
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Employees claim the Lockheed 401(k)s used Lockheed Martin Investment Management Co. to steer assets into in-house investment funds that underperformed significantly compared with independent alternatives, violating the Employee Retirement Income Security Act (ERISA). In other words, “rather than relying on independent investment professionals to fulfill these obligations … Lockheed … chose a ‘DIY’ approach,” the lawsuit states.
Lockheed’s TDFs —which are supposed to automatically adjust asset allocations as workers near retirement—”chronically” lagged behind market-leading options, “despite the plethora of higher-quality services and TDFs offered by reputable 401(k) plan managers like T. Rowe Price, Fidelity, and Vanguard,” according to the suit. Over the past decade, comparable funds delivered annual returns ranging from 0.41 percent to 1.37 percent higher than Lockheed’s proprietary funds.
Instead of removing the underperforming funds in 2019, Lockheed introduced new funds for younger employees with target retirement dates of 2065 to 2070 and automatically enrolled employees into those funds if they failed to make a selection themselves. “Contrary to what loyal fiduciaries would have done, defendants ran a leaching operation that extracted value from plaintiffs’ retirement savings,” according to the suit.
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From: BenefitsPRO
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Lynn Cavanaugh
Lynn Varacalli Cavanaugh is Senior Editor, Retirement at BenefitsPRO. Prior, she was editor-in-chief of the What's New in Benefits & Compensation newsletter. She has worked for major firms in the employee benefits space, Vanguard and Willis Towers Watson, as well as top media companies, including Condé Nast and American Media.
