Next week, a St. Louis district court will begin to hear participants' arguments that the second largest 401(k) plan in the country violated its fiduciary obligations under the Employee Retirement Income Security Act.
A class of 190,000 participants and retirees in Boeing Inc.'s Voluntary Investment Plan, a 401(k) with about $45 billion in assets, allege that company fiduciaries knowingly allowed State Street, the plan's recordkeeper, to charge excessive fees, and that they failed their duty to prudence by allowing expensive and risky investment options.
Spano V. Boeing was originally filed in September 2006. Plaintiffs allege Boeing allowed State Street to charge recordkeeping fees that were 35 percent more expensive than the highest end of an industry benchmark range provided by the consultant Boeing hired to do a plan cost analysis.
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Fiduciaries also selected mutual funds with high management fees, allegedly for the purpose of channeling revenue-sharing profits to CitiStreet, a State Street subsidiary.
Plaintiffs will argue that Boeing's failure to put out a request for proposal for recordkeeping services for the decade prior to the original filing of the suit in part proves a fiduciary breech, according to a summary of the case provided by Schlichter, Bogard and Denton, the St. Louis-based firm representing the plaintiffs that recently won a $62 million settlement in Abbott v. Lockheed, the largest ERISA settlement to date.
One State Street small cap proprietary fund included up to 50 basis points in costs for revenue sharing.
A technology sector stock fund, which was added to the plan in 1997 and was the only "sector" fund available, held large portions of many participants' assets and was kept in the lineup until 2004, well after the technology stock bubble burst in 1999.
The fund lost 22.5 percent in 2000, 45 percent in 2001, and 47 percent in 2002. Beyond those number, plaintiffs will argue that inclusion of the fund was imprudent, as it is rare for 401(k)s to include sector funds, due to their high concentration in a specific area of the stock market.
After Boeing removed that tech sector fund, fiduciaries replaced it with another technology sector growth fund.
Boeing also held too much cash in its stock plan, causing millions in losses to participants, and paid too much money to State Street to manage the case, allege the plaintiffs.
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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.
