Data & Research December 19, 2007

You Better Watch Out – And You Had Better Not Blink

Santa Claus is coming to town – for about 34 microseconds.
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That’s the projection of Swedish consultancy Sweco, who says that is how fast that jolly old elf will have to travel if he’s to make it to an estimated 2.5 billion homes around the world between Christmas Eve and Christmas Day.
They made that determination assuming that children of all religions receive a present from Santa – and that there are 48 people per square kilometer (120 per square mile) on Earth, and 66 feet between each home.
But Sweco’s report on Santa’s most efficient route – which takes into account factors like geographic density and the fewest detours – shows that he wouldn’t be able to make his round-the-world trip from the North Pole on time (standing on the International Date Line, moving from east to west and crossing different time zones, Santa has not just 10 hours to deliver his presents (from 8 p.m., when children go to bed, until 6 a.m., when they wake up), but an extra 24 hours— 34 hours in all). Nonetheless, that leaves just 34 microseconds at each stop to slide down the chimney, drop off the presents, nibble on his cookies and milk and hop back on his sleigh. No wonder the kids never see him!
As a way of maximizing the efficiency of his travels, the engineering consultants at SWECO have come to the conclusion that Santa Claus should live in Kyrgyzstan. By starting his journey there, they say he “can eliminate time-consuming detours and avoid subjecting his reindeer to undue strain’, according to a press release. They say that Kyrgyztan is located close to the richly populated countries of China and India and a ways up on the more densely populated northern hemisphere – an ideal place to live if Santa Claus starts in eastern Asia and then continues his Christmas journey in a westerly direction. He would then be traveling against the Earth’s rotation, which would give him twice as much time to deliver gifts to all of the world’s children.
Of course, Santa’s speed is a function of those eight tiny reindeer – that must travel at a speed of 3,604 miles per second to make the trip on time. There are some, however, that say if you could find eight reindeer that could fly – and that could fly at that speed – that they would encounter such massive air resistance – – – that they, the sleigh, the packages, and the driver so “lively and quick’ would be vaporized – within 4.26 thousandths of a second!
Compliance December 19, 2007

Plaintiffs Amend Boeing 401(k) Excess Fee Suit

Boeing Co. employees suing the aviation manufacturer over excessive 401(k) fees have added a trio of allegations, including that the plan improperly offered more expensive and lower performing actively managed funds.
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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.

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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.

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