According to the Labor Department, Boeing has the second-largest 401(k) plan in the U.S. with assets around $44 billion. Nine years ago, employees and retirees of Boeing filed a class-action lawsuit against the company for mishandling its 401(k) plan to the detriment of its employees. The plaintiffs accused the company of offering imprudent investment options and allowing fund managers to charge excessive fees.
Class-action Lawsuit: The lawsuit alleges that the actions of Boeing violated ERISA (Employee Retirement Income Security Act), which regulates private pension plans and that Boeing put its own interests ahead of those of its employees. Court documents indicate that Boeing-employees each paid $103 for administrative services in 2005 for their pension plans, when a comparable pension plan should have charged no more than $42. Between 1997 and 2005, Boeing’s pension plan overpaid for record-keeping and administrative services by $35.4 million. The lawsuit also claims that Boeing encouraged some of its bankers to provide services for the pension plan, even though it knew that the bankers were charging excessively high fees, while obtaining various loans and lines of credit from the same bankers.
Boeing strongly denied the claims of the lawsuit all along and was prepared to show, via a trial, that all planned investment options and fees were carefully monitored, prudent and in line with the best practices in the 401(k) industry. However, on August 26, Boeing reversed its prior position and agreed to a preliminary deal to settle this long standing lawsuit. The settlement was made the same day the trial was scheduled to begin. Terms are yet to be disclosed.
Money Exchanging Hands: Effectively, the settlement amount is being borne by Boeing’s shareholders. Over the last 5 days, Boeing stock price has declined from $140 to $130 (as of yesterday) which means shareholders collectively lost about $6.5 billion. The law firm representing the plaintiffs most likely will collect one-third of the settlement amount and the remaining amount would probably get added to the 401(k) plan. The bankers/managers who charged the excessive fees for managing the 401(k) do not bear any cost or penalty nor does the management of Boeing. Money simply exchanged a few hands.