The Department of Labor will look for a possible ERISA
violation after making an unprecedented petition to look at the case documents
last summer. The U.S. District Court for the Central District of California is
allowing, in part, a motion for the Department of Labor to intervene in a
401(k) excessive fee lawsuit against defense contractor Northrop Grumman.
On Nov. 18, the court gave the OK to the plaintiffs in the
case — participants in Northrop's 401(k) plan — and their attorney Jerry
Schlichter of Schlichter Bogard and Denton to pass along critical case
documents to the Department of Labor. The court's clearance for the document
sharing is a response to the DOL's petition for the files back in July.
The agency's Employee Benefits Security Administration is
conducting an investigation of the Northrop Grumman savings plan, according to
the DOL's original motion to intervene from this summer. The point behind the
motion was to determine if a violation of the Employee Retirement Income
Security Act of 1974 has taken place or is about to take place.
Mr. Schlichter is barred from sharing details on what
exactly the DOL seeks, but he noted that the agency's willingness to step in is
another example of the greater scrutiny officials are placing on 401(k) fees.
The Northrop case is one of many that Mr. Schlichter is
pursuing on the behalf of plaintiffs in 401(k) plans with alleged excessive
fees. This particular suit, Grabek et al v. Northrop Grumman, dates back to
2007 and was subsequently merged with a related case in 2010. The plaintiffs
allege that the defense contractor's executives and investment committee
breached their fiduciary duty by using funds with exorbitantly high expenses,
among other infractions.
Notably, Northrop's 401(k) plan allegedly offered a fund
comprised solely of company stock, which paid average annual investment
management fees of $454,588 over a five-year period. Other funds had supposedly
high prices, too: A small cap fund offered on the plan menu charged up to 81
basis points, when other similar funds with less than one half of the assets
charged 52 basis points, according to the complaint.
Administrative expenses were also high, according to the
complaint: Administrative fees ranged from 12 basis points to 14 basis points
in 2004, but jumped as high as 113 basis points in 2005. Those fees were
allegedly paid to Northrop employees, and they “were excessive when compared to
the market,” according to the suit.
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