Coming to Terms

Kraft Foods Global agreed to pay $9.5 million to settle a lawsuit over excessive fees for its 401(k) plan investments.

In the long-running case of George v. Kraft Foods Global, Inc., et al., the plaintiffs alleged that Kraft violated its Employee Retirement Income Security Act (ERISA) fiduciary duties by allowing excessive fees, holding excessive cash within the plan’s company stock funds and offering imprudent funds as investment options. 

Last July, U.S. District Judge Ruben Castillo of the U.S. District Court for the Northern District of Illinois concluded that a jury could find that “a reasonably prudent businessperson with the interests of all the beneficiaries at heart” would have banned actively managed funds from their 401(k) plan, as Kraft had done in its defined benefit (DB) plan because it concluded that active funds did not consistently outperform index managers. 

A district court previously ruled Kraft had met the ERISA requirements for fiduciary behavior in monitoring its recordkeeping service agreement with Aon Hewitt regarding the Kraft Foods Global Inc. Thrift Plan, and investigating and then deciding to unitize its company stock funds. However, the 7th U.S. Circuit Court of Appeals sent that claim back to the District Court, saying there was a genuine issue of material fact as to whether Kraft acted prudently. 

“After more than five years of litigation, to avoid the additional uncertainties and costs associated with continued litigation, the parties have reached a mutual resolution to this case,” the settlement agreement stated.