Lockheed Martin Corporation office in Crystal City, Virginia, USA
There’s been an uptick in 401(k) mismanagement lawsuits in the last year, and now Lockheed Martin is another firm being sued by current and former employees, alleging the aerospace and defense company used underperforming target date funds (TDFs) with high fees in its 401(k) plan for the firm’s own benefit.
Last week, participants in three Lockheed Martin retirement plans, totally around $50 billion in total assets – $47.2 billion in the salaried plan, $2.1 billion in the bargaining plan and $267 million in the capital plan – filed a proposed class action lawsuit, Fezer et al v. Lockheed Martin Corporation et al, in the U.S. District Court of Maryland. Lockheed’s retirement plans manage assets for around 140,000 plan participants.
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The company 401(k) plans have lost out on “hundreds of millions of dollars” since 2019 because of Lockheed Martin’s decision to use high-cost and poorly performing target date funds from a wholly-owned subsidiary that provides investment management services, according to the complaint.
Employees claim Lockheed used Lockheed Martin Investment Management Co. to steer assets into in-house investment funds that underperformed significantly compared to independent alternatives, violating the Employee Retirement Income Security Act (ERISA). In other words, “rather than relying on independent investment professionals to fulfill these obligations … Lockheed … chose a ‘DIY’ approach,” the lawsuit states.
Lockheed’s TDFs —which are supposed to automatically adjust asset allocations as workers near retirement—”chronically” lagged behind market-leading options, “despite the plethora of higher-quality services and TDFs offered by reputable 401(k) plan managers like T. Rowe Price, Fidelity, and Vanguard,” according to the suit. Over the past decade, comparable funds delivered annual returns ranging from 0.41% to 1.37% higher than Lockheed’s proprietary funds.
Instead of removing the underperforming funds in 2019, Lockheed introduced new funds for younger employees targeting retirement dates in 2065 and 2070, and automatically enrolled employees into these funds if they failed to make a selection themselves.
Related: Law firm wants to challenge health care costs, asks Lockheed Martin workers to join suit
“Contrary to what loyal fiduciaries would have done, defendants ran a leaching operation that extracted value from plaintiffs’ retirement savings,” according to the suit.
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Lynn Cavanaugh
Lynn Varacalli Cavanaugh is Senior Editor, Retirement at BenefitsPRO. Prior, she was editor-in-chief of the What's New in Benefits & Compensation newsletter. She has worked for major firms in the employee benefits space, Vanguard and Willis Towers Watson, as well as top media companies, including Condé Nast and American Media.
