Employees of
Northrop Grumman have reached an agreement with their employer to resolve
claims in the long-running matter of In
re Northrop Grumman Corp. ERISA Litigation, a class action lawsuit initially filed back in
2006.
The parties reached a $16.75 million settlement amount, to
be used to improve the administration of the retirement plans in question and
to compensate employees and retirees. In the underlying suit, the plaintiffs
alleged, among other claims, that Northrop fiduciaries violated their duties to
employees in two 401(k) retirement plans by improperly causing those plans to
pay Northrop for administrative services.
The case was interpreted as a classic example of an Employee
Retirement Income Security Act (ERISA) self-dealing
challenge. This type of charge is often leveled against the retirement
plans being run by investment providers and recordkeeping providers themselves,
but increasingly non-investment-industry sponsors are also accused of similar
conflicts.
A motion for approval of the settlement was filed by the
parties in the Court of Judge Andre Birotte Jr. of the U.S. District Court for
the Central District of California. A bench trial began March 14, 2017, and
the settlement was initially struck after three days of
trial. The settlement extends to conduct occurring between September
28, 2000 and May 11, 2009, according to the plaintiffs.
The settlement does not cover claims raised in Marshall v. Northrop Grumman Corp., a
second case against Northrop in September 2016. This second piece of litigation
posits similar allegations on behalf of Northrop employees and retirees, for
conduct occurring from 2010 to the present. That matter is also playing out in
the Central California district court.
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Whether carrying student loan debt well into middle age or
saving for a child’s college education, Americans are increasingly finding that
funding education is a major drag on their retirement savings.
While young people may delay saving for retirement because
of crushing student loans and parents may think it is more important to fund
their child’s education, they should not lose sight of their own needs in
retirement, advisers say.
“Student loan debt is the No. 1 baggage that people come in
with when they start a career,” notes James Sullivan, vice president for Essex
Financial in Essex, Connecticut. “A monthly payment of $600 or $800, more than
a car payment, can be crippling.”
Indeed, a survey by IonTuition found that 70% of students
are graduating from college with student loan debt averaging $37,172, and that
people are carrying this debt well into their adult years; 44% of Millennials
are carrying student loan debt, while the same is true for 26% of Gen X and
13%
of Boomers. IonTuition discovered a direct link between student loan debt
and retirement savings, finding that people with no student loans have a median
retirement savings balance of $56,000, but that people with student loans have
a median balance of $31,000.
The majority of people are paying back their student loans
over decades, notes Mike Brown, managing director of the student loan and
college savings advisory firm Nitro, based in Wilmington, Delaware. While only
large companies are beginning to offer workers help managing or even paying for
their student loans, Brown hopes that this benefit will resonate among more
employers. “It is a tremendous way to attract talent,” he says.
The IonTuition survey found that only 4% of employers
provide assistance with student loan repayment, but that 76% of Americans think
it would be an excellent benefit, 36% would prefer student loan repayment
benefits over a 401(k), and 29% would prefer these benefits over health
benefits.
NEXT: College savings
The next big hurdle that Americans face when it comes to
education savings, of course, is putting their children through college. For
many parents, this takes complete priority over their own retirement savings,
Brown notes.
“Too often, I see someone in their 50s saying, ‘Now the kids
are done with college and I will start saving for retirement,’” Sullivan says.
“I get why we see this, but it is far harder for a 55-year-old to come up with
a sufficient retirement plan than it is for a 35-year-old.”
John Burke, chief executive officer of Burke Financial
Strategies in Islin, New Jersey, says that even for his clients, who have an
average balance of $1 million and a household income of $150,000 to $200,000,
funding college is an issue.
“The majority of our clients are saving in a 529 college
savings plan, taking advantage of that great tax benefit, and may have a
balance of $150,000, but even for a state school, which can cost $200,000 for
four years, that will not be enough,” Burke says. “Maybe they have two kids and
are facing a $400,000 bill. That will make it a real struggle for them to come
up with enough to retire on at the standard of living they are accustomed to.”
For the majority of Americans, college savings is far paltrier
than this. A survey by Sallie Mae and Ipsos found that while 57% of parents
were saving for college in 2016, their average balance was a mere $16,380.
Both Brown and Burke think parents should consider putting
their child through two years of community college before transferring to state
or private school, to shave the cost down. Brown says that parents should also figure out
how much they can reasonably afford to put their children through school,
and then have an honest conversation with their children about how much they
can help them.
“Otherwise, they will literally be mortgaging their future
and their retirement,” Brown says. “We are going to hear more and more about
parents not being able to retire because of this debt burden.” The reality is,
he says, people’s children may, in fact, need to take on student debt of their
own.
While many student loans require parents to co-sign, there
are alternatives available to parents like a co-signer release or an
income-driven repayment plan, according to Student Loan Hero. “There are other
options for parents,” Brown notes. “They just need to explore them.”