Settlement Terms and Price Tag Revealed in Boeing Fee Case

The retirement planning industry already knew Boeing would settle the nearly decade-old 401(k) litigation, but a trove of new details emerged this week as both parties agreed to final settlement terms.  

Plaintiffs’ attorneys announced months ago that Boeing would settle the long-running 401(k) excessive fee lawsuit, Boeing v. Spano, but at the time few concrete details emerged as to what Boeing’s liability might be, financial or otherwise.

Today the price tag emerged as a cool $57 million for Boeing, as laid out in a tentative settlement agreement provided by Jerry Schlichter, managing partner at Schlichter, Bogard & Denton and lead attorney for plaintiffs. He adds this is the “second highest in excessive 401(k) fee litigation after the $62 million settlement achieved on behalf of Lockheed Martin” in February 2015.  

The approximately 190,000 plaintiffs in this particular case alleged that Boeing violated the Employee Retirement Income Security Act (ERISA) by permitting a variety of excessive fees to be charged to 401(k) plan participants. They also claimed that Boeing engaged in self-serving conflicts of interest, and permitted imprudent funds to be included in the company retirement plan Earlier this year the U.S. District Court for the Southern District of Illinois said it would hear new arguments from both sides, but on the eve of trial Boeing instead announced it would settle the accusations that it violated ERISA. 

Terms of the settlement were submitted to the court, but were not immediately available online or from the parties. Now they have emerged as submitted to the district court for approval.

Schlichter tells PLANADVISER that, in addition to the terms emerging today, administrative improvements and fee reductions obtained after filing the case “are already benefiting Boeing employees and retirees, and will continue to do so for many years to come.” The final settlement still requires approval of a joint motion for settlement filed by the parties in the Court of Chief Judge Nancy J. Rosenstengel of the U.S. District Court for the Southern District of Illinois. This seems likely, given both party’s clear support for the terms and the similarity of the approach to other 401(k) litigation settlements that have been approved.

While Boeing still denies all of the allegations and contends it complied in all respects with the law, it already moved soon after the initial case was filed to obtain new and competitive bids for its retirement plan service providers, “already resulting in significant savings for employees and retirees,” Schlichter says.

NEXT: Settlement long on details and intent 

Boeing also has already replaced mutual funds with lower priced separate accounts and has agreed to retain an independent investment consultant “to review or not to offer a technology sector fund in the plan,” and has also agreed to the district court retaining jurisdiction to enforce the settlement for three years.

Many more details are contained in the settlement agreement as to what else Boeing will now have to do to make whole its participants. Both the class representatives and class counsel say they consider it “desirable and in the class members’ best interests that the claims against defendants be settled on behalf of the class representatives and the class upon the terms set forth [by the agreement],” and they have concluded that such terms are “fair, reasonable, and adequate.”

Programmed into the settlement language is everything from how and on what timeline Boeing will be required to create and disseminate a qualified settlement fund—to how attorneys’ and court fees will be assessed and distributed. One detail advisers will surely be wondering about: “Class Counsel will seek to recover their attorneys’ fees, not to exceed nineteen million dollars ($19,000,000), and litigation costs and expenses advanced and carried by Class Counsel for the duration of this litigation, not to exceed one million, eight hundred forty-five thousand dollars ($1,845,000), which shall be recovered from the Gross Settlement Amount.”

Also contained in the settlement documentation are draft notices for class members, which define the settlement terms in a concise way: “After nine years of litigation, the Settlement has been reached. As part of the Settlement, a Qualified Settlement Fund of $57,000,000 will be established to resolve the Class Action. The Net Settlement Amount is $57,000,000 minus: (a) all Attorneys’ Fees and Costs paid to Class Counsel; (b) all Administrative Expenses; (c) any and all Class Representatives’ Compensation; and (d) a contingency reserve not to exceed an amount to be mutually agreed upon by the Settling Parties that is set aside by the Settlement Administrator for: (1) Administrative Expenses incurred before the Settlement Effective Date but not yet paid, (2) Administrative Expenses estimated to be incurred after the Settlement Effective Date but before the end of the Settlement Period, and (3) an amount estimated to account for adjustments of data or calculation errors.”

The final net settlement amount for a given class member is set according to a “plan of allocation to be approved by the Court.” Under the settlement agreement’s terms, class members fall into two categories, Current Participants and Former Participants, which may collect settlement assets on differing schedules.

NEXT: Plan of allocation 

The plan of allocation outlined in settlement documents is necessarily complex, but the key details are explained as follows:

“The Settlement Administrator shall obtain, in writing, an agreement between Class Counsel and the Settlement Administrator on the Net Settlement Amount, and the amount apportioned to each sub-class. The Net Settlement Amount shall be allocated to the sub-classes as follows: (a) 50% to the Recordkeeping Class (the “Recordkeeping Allocation”); (b) 20% to the Mutual Fund Sub-Class (the “Mutual Fund Allocation”); (c) 15% to the Technology Fund Sub-Class (the “Tech Fund Allocation”); (d) 10% to the Company Stock Fund Sub-Class (the “CSF Allocation”); and (e) 5% to the Small Cap Fund Sub-Class (the “SCF Allocation”).”

According to the settlement agreement, the Recordkeeping Allocation will be divided among class members on a pro rata basis in proportion to each member’s average quarter-ending plan account balance over the class period, starting with the fourth quarter of 2000 and ending with the fourth quarter of 2006.

The Mutual Fund Allocation will be divided among class members of the mutual fund sub-class also on a pro rata basis in proportion to each class member’s combined average quarter-ending balance in the plan’s mutual funds between September 30, 2000, and December 31, 2005. The SCF Allocation, in a similar way, will be divided among the class members of the small cap fund sub-class on a pro rata basis in proportion to each class member’s average quarter-ending balance in the plan’s actively-managed small cap fund during the same time period. Monies will be routed to the company stock fund sub-class in the same way, but calculated according to a members’ holdings in that asset class, and so on for the remaining member classes. 

The Settlement Administrator will then “utilize the calculations required to be performed herein for (a) making the required distributions to Authorized Former Participants; and (b) instructing Defendants as to the amounts to be distributed to Current Participants and calculating the total amount to deposit in the Plan to fulfill this instruction.” Unless the settling parties agree in writing, the total amount of all checks to be written by the Settlement Administrator plus the total amount of all credits that defendants are instructed to make to current participants may not exceed the net settlement amount.

See "Plans Must Carefully Field ERISA Claims and Settlements."

The full text of the settlement agreement is here.