In addition to allowing the plaintiffs to tack on additional charges, U.S. District Judge David R. Herndon of the U.S. District Court for the Southern District of Illinois permitted them to add as a defendant the Boeing Employee Benefits Investment Committee because of the committee’s authority over the plan.
Plaintiffs’ lawyers had asked Herndon for permission to make the changes after reviewing almost 56,000 pages of documents Boeing supplied between April and October 2007 as part of pre-trial discovery, according to Herndon’s ruling. Herndon accepted the lawyers’ contention that they did not include the new charges in the original lawsuit because they only discovered the information underlying the added allegations after seeing the Boeing-supplied discovery material.
Charges added to the complaint include:
- The multi-billion dollar plan failed to capture millions of dollars in income streams now going to providers that should be redirected to benefit participants. Among the income streams cited is the practice by plan trustees or custodial banks to perform cash sweeps of plan accounts so they can earn interest on the cash before it is transferred to designated investment options. Plaintiffs also cited money earned through securities lending and earnings from the foreign currency exchange market. The new complaint asserted: “Accordingly, plan fiduciaries must also understand and consider these additional compensation streams in fulfilling their fiduciary obligations to ensure that the full amount of available sums are captured for the plan and applied solely for the benefit of the plan and its participants and beneficiaries.”
- The plan offered regular mutual funds rather than using its enormous size (the company’s Master Trust had about $25 billion in assets in 2005, according to the suit) to convince investment managers to set up less expensive separate accounts. The amended complaint says the company’s admission that the plan saved about $10 million in fees by moving to separate accounts in 2006 should be taken as proof fiduciaries knew the separate account route was cheaper. “But they did not, and have not, made good to the plan for the many millions of dollars that the Plan paid in excess and unnecessary expenses in prior years,” the complaint alleged.
- The plan imprudently included actively managed fund options rather than concentrating on less expensive and better performing passive funds. The complaint charged: “Defendants’ inclusion in the plan of actively-managed funds provided no added value to participants while forcing them to bear substantial and unnecessary fees. … Including actively-managed funds as investment options in the plan virtually guaranteed that participants and beneficiaries would receive less than a market return on their long-term retirement savings, when they could have received market returns.”
In general, the lawsuit alleges that Boeing and its director of benefits breached their Employee Retirement Income Security Act (ERISA) fiduciary duties by failing to contain plan costs and paying unreasonable fees to service providers.
In April 2007, Herndon denied Boeing’s motion to dismiss the employees’ lawsuit and allowed discovery to begin (See Boeing Excessive 401(k) Fee Suit Moves Beyond First Legal Round).
Herndon’s latest ruling in Spano v. Boeing Co., S.D. Ill., No. 3:06-cv-00743-DRW-DGW, 12/14/07, is available here.
The amended complaint can be found here.