Northern Trust Co. has agreed to pay $36 million to settle claims by plaintiffs in two 401(k) plans alleging the firm mismanaged investments in its securities lending business and charged excessive fees.
As part of the deal, Chicago-based Northern Trust and Northern Trust Investments denied any wrongdoing.
The suit, filed in 2009, was brought by a participant in an ExxonMobil 401(k) plan and another in a Texas Instruments plan. They alleged Northern Trust and Northern Trust Investments imprudently managed collateral pools in its securities lending program, according to court documents.
Recommended For You
Northern Trust Investment served as the manager for both plans. As part of the program, stocks and bonds in individual funds are lent to certain borrowers, who post collateral equal to the value of 102 percent of the borrowed shares.
Also read: Supreme Court could redefine ERISA
As the value of the securities fluctuates, so does the collateral. When the value of the securities increase, more collateral must be posted.
Some of the value of the collateral is required to remain liquid, as the collateral must be returned to investors if the value of the securities drops. The collateral that is not liquid is invested, in order to generate returns.
Northern Trust was tasked with investing the illiquid portion of the collateral, charging fees to the securities lending program. The plaintiffs' alleged those fees were excessive under the Employee Retirement Income Security Act.
They also alleged the investments made from the collateral pools between January 1, 2007 and October 31, 2010 caused the funds to lose money.
Early in 2012, the plaintiffs filed a motion for class certification. In the end, the class would never be certified, as the parties began mediating a solution outside of court.
Northern Trust is fighting another claim against its securities lending program, brought by the Louisiana Firefighters' Retirement System, the Public School Teachers Pension and Retirement Fund of Chicago, the Board of Trustees of the Pontiac Police and Fire Retirement System in Michigan and the Board of Trustees of the City of Pontiac General Employees Retirement System.
© 2025 ALM Global, LLC, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.
Nick Thornton
Nick Thornton is a financial writer covering retirement and health care issues for BenefitsPRO and ALM Media. He greatly enjoys learning from the vast minds in the legal, academic, advisory and money management communities when covering the retirement space. He's also written on international marketing trends, financial institution risk management, defense and energy issues, the restaurant industry in New York City, surfing, cigars, rum, travel, and fishing. When not writing, he's pushing into some land or water.
