The Markets February 19, 2015

Northern Trust Agrees to Settle Securities Lending Suit

Northern Trust wants to put an end to litigation that has been ongoing since 2009.
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Northern Trust Investments has agreed to pay $36 million to settle a lawsuit claiming it violated the Employee Retirement Income Security Act (ERISA) in handling retirement plan assets invested in its securities lending program. 

The lawsuit alleges that Northern Trust breached its duties to retirement plans and their participants and beneficiaries by imprudently investing collateral received from securities lending activities and by charging impermissibly high fees. Plaintiffs Joseph Diebold, representing the ExxonMobil Savings Plan, and Paul Hundt, representing the Texas Instruments 401(k) Savings Plan, filed the lawsuit in 2009, alleging Northern Trust Investments and Northern Trust Co. had ignored warning signs indicating a different investment strategy was in order. 

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The proposed settlement has been achieved on behalf of retirement funds that invested in Northern Trust’s Commingled Lending Funds, which participated in Northern Trust’s securities lending program, during the period January 1, 2007, through October 31, 2010. 

According to the settlement agreement, Northern Trust is entering into the agreement solely to eliminate the burden, expense and distraction of further litigation. The settlement is not an admission of any guilt. 

The final settlement in Diebold v. Northern Trust Investments is conditioned on final approval of the partial settlement of a similar case, Louisiana Firefighters’ Retirement System, et al. v. Northern Trust Investments, N.A., et al.

Diversions February 19, 2015

Money Smarts for Kids and Young Adults

How do financially savvy adults get their money skills? Research shows that childhood is a great place to start.
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Financial well-being doesn’t mean living the lifestyle of the rich and famous, but instead just controlling your finances, providing a financial safety net for yourself and your family, and meeting financial goals. How much do school kids know about this? And how can adults teach them?

Elizabeth Odders-White, an associate professor with the University of Wisconsin-Madison’s Wisconsin School of Business, conducted a broad review of existing literature from consumer science, developmental psychology and related fields to identify how children can best develop the skills and approaches to become adults capable of managing their own finances.

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The review establishes the critical importance of parents and other adults in fostering financial well-being for youth of all ages and suggests specific steps that could improve children and youth’s chances of achieving financial well-being in adulthood—and later retirement.

Financial education tips for kids, by age:

  • Pre-elementary school: Teach kids how to focus despite distractions and help them practice delaying gratification. Distraction and grabbing for gratification are of course two harmful practices for grown-up investors.
  • Elementary and middle-school: Give guidance in basic financial skills and healthy financial attitudes, including learning about savings, frugality and financial planning by observing behaviors modeled by parents and other adults.
  • Adolescents and young adults: Build financial learning through increasing financial independence, supervised engagement with the financial system and experience-based, practical, education programs that teach financial research skills.

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