Compliance February 20, 2015

Long-Running Lockheed Martin Fee Case Settled

A $62 million settlement between Lockheed Martin and participants in its 401(k) plan brings to rest a nearly decade-old complaint arguing Lockheed failed to adequately negotiate for lower plan fees.
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The settlement also includes a range of non-monetary relief provisions to ensure compliance with the settlement and enhance the 401(k) plan for the benefit of Lockheed Martin employees and retirees. It must be approved by the U.S. District Court for the Southern District of Illinois before taking effect.

Industry practitioners have long followed the case, referred to as Abbott v. Lockheed, due to the large size of the plaintiff class (more than 100,000 participants) and the substantial monetary damages sought by plaintiffs’ attorney, Jerry Schlichter, of Schlichter Bogard and Denton.

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In a statement announcing the pending settlement agreement, Schlichter says Lockheed employees and retirees will “benefit significantly from the use of competitive bids for services to their plan, reporting to the court, assuring compliance, a greater degree of transparency, and lower overall costs.” Schlichter also claims the settlement is the largest result for a 401(k) excessive fee claim ever levied against a single employer in the United States.

The initial complaint was filed September 11, 2006. Plaintiffs alleged that Lockheed Martin breached its fiduciary duties under the Employee Retirement Income Security Act (ERISA) when it imprudently managed and invested plan participants’ retirement savings in funds that charged excessively high fees that diminished returns. Further, they alleged that Lockheed Martin allowed an unreasonably high level of participants’ retirement assets to be held in low-yielding money market funds of State Street Bank & Trust, with whom Lockheed Martin had multiple business relationships. The plaintiffs also alleged that they were charged excessive recordkeeping fees.

Lockheed Martin denied all of the allegations and contends it complied in all respects with the law. In the settlement, Lockheed Martin has agreed to initiatives designed to strengthen its 401(k) plan as part of the non-monetary relief.

Court documents show Lockheed has agreed to file annually with the district court a notice that assures compliance with the settlement. The notice includes monthly evaluations on the average portion of the plan’s stable value fund that is allocated to money market instruments; monthly evaluations on the average portion of the plan’s company stock funds that are allocated to cash equivalents; and monthly reports obtained from Morningstar, summarizing the characteristics of the funds with respect to performance, among other metrics.

Lockheed Martin must also receive bids from at least three third-party recordkeeping services for the Lockheed Martin savings plan. The recordkeepers providing bids must currently be serving 401(k)s with assets greater than $5 billion. The bids and the final selection of a recordkeeper must be reported to the court. 

Finally, Lockheed Martin will offer funds that have the lowest expense ratios, as applicable. Lockheed Martin will also consider the use of collective investment trust or separately managed accounts. Under the settlement, the district court will retain jurisdiction to enforce the settlement terms for three years.

The full text of the settlement agreement is  here.

In Practice February 20, 2015

Say This, Not That!

Lofty statements, technical terms, and jargon that’s incomprehensible to the average retirement plan participant can leave advisory clients feeling confused and frustrated.
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Do advisers use phrases that should be translated into plain English? Some people think so, among them ‎Alexandra Taussig, senior vice president for marketing and business strategy at Fidelity Investments. She notes that women have very strong feelings about the language used in talking with financial advisers.

Women often think about investing differently than men, Taussig tells PLANADVISER, and their focus tends to be on goals, not performance. Can they retire when they want, can they put their children through college? Advisers should put things in those terms, rather than pointing to esoteric concepts, such as “how energy is doing,” she says. The word “planning” may sound better than “investing” to some women, Taussig adds.

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Jeff Snyder, vice president, senior consultant at Cammack Retirement Group, thinks that male plan participants also may prefer some terms over others. Plan participants are smart, Snyder says, but they don’t do finance for a living. He believes advisers should avoid technical language in order to engage the average American. Don’t forget, Snyder warns, “most people are doing eight things at once.” Best to avoid making things sound complex or more mysterious than they really are.

Take our survey and share your thoughts on the words and phrases that will best reach participants—or “savers” or “employees,” as they are likelier to think of themselves. Thank you!

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