A St. Louis plaintiff's lawyer known for waging yearslong
battles to improve employee retirement plans is about to take on
his biggest target yet: Boeing Co.
In a trial slated to begin Wednesday in East St. Louis, Ill.,
federal court, a judge will weigh whether Boeing mishandled its
401(k) plan by offering imprudent investment options and allowing
excessive fees to get passed on to employees. The class-action
suit, filed on behalf of 190,000 Boeing employees and retirees, has
been in court for almost a decade.
The company has vowed to fight the suit, one of only a few such
cases to go to trial. Boeing said it "strongly disagrees with the
claims" and is prepared to show that its investment options and
fees have been in line with industry standards.
Backing the suit is Jerome Schlichter, a personal-injury and
civil-rights lawyer who since 2006 has gone after companies for
alleged violations of the complex Employee Retirement Income
Security Act, or ERISA. Since then, he has filed 18 suits against
major corporations over purported 401(k) violations. The lawsuit
against Boeing, filed in September 2006, was one of the first.
Eight settlements have resulted in more than $214 million in
payouts, with $70 million of that going to 67-year-old Mr.
Schlichter and his law firm, Schlichter Bogard & Denton LLP.
The settlements also required the companies to make permanent
changes to their retirement plan practices. Six of his cases are
pending, including one that went to the U.S. Supreme Court earlier
this year, and four others have been dismissed.
As defined-benefit pension plans in the private sector are
phased out, more Americans have come to rely on 401(k) plans, which
allow employees to save pretax dollars, for their retirement. Of
the $24.9 trillion in U.S. retirement assets at the end of March,
18.7% was in 401(k) plans, according to the Investment Company
Institute, a mutual-fund trade group. That is up from 15.5% of the
$14.2 trillion retirement market in 2008.
Boeing's $44 billion 401(k) plan is the second-largest in the
nation, according to the Labor Department.
The lawsuit accuses Boeing of failing to uphold its fiduciary
duties to employees by allowing excessive fees to go unchecked,
choosing higher-cost retail mutual funds over cheaper options, and
improperly making 401(k) plan decisions to benefit vendors
receiving other Boeing business.
In court documents, the plaintiffs say Boeing employees each
paid $103 for administrative services in 2005, when a plan of its
size should have charged no more than $42, according to an expert
hired by the plaintiffs. Between 1997 and 2005, the plan overpaid
for record-keeping and administrative services by $35.4 million,
according to the hired expert.
In 2007, the company reduced its per-employee fees to $32 after
putting out a bid for a new contract, court filings show.
The class action also criticizes Boeing for including options to
invest in the company's own stock and in a money-losing
technology-sector fund.
In a deposition, one former Boeing executive defended the tech
fund, saying the investment was optional. "An individual has the
right to shoot themself (sic) in the foot if they so desire," the
executive said. "They pay the price."
In court papers, Boeing, represented by O'Melveny & Myers
LLP and Bryan Cave LLP, said that it isn't the company's fault if a
particular investment underperformed. "There is no crystal-ball
requirement in ERISA," the company said in a 2009 court filing.
Across the country, 401(k) plan fees dropped by an average of 10
basis points between 2009 and 2012, according to a study released
last year by BrightScope Inc., a company that rates 401(k) plans,
and the Investment Company Institute.
Some industry experts say the fee reductions are the natural
evolution of an industry that has been in existence only since the
1980s.
Mike Alfred, the chief executive of BrightScope, said he
believes the string of class-action lawsuits has improved industry
practices—though he added that some companies named in the suits,
including Boeing, have had strong overall 401(k) plans compared
with the rest of the market.
Mr. Schlichter, the son of an aircraft mechanic, said he was
inspired to look into the industry after watching his mother
survive on his father's federal pension. "She didn't have to worry
about stocks and fees," he said. Making sure companies are
upholding their fiduciary responsibilities, he said, "levels the
playing field for an unsophisticated employee."
One Boeing employee who is an original party to the suit is John
Bunk, an aircraft assembly inspector who took a retirement buyout
from the company in May. Now, he is living on an Alpaca farm in
Illinois and relying on both a Boeing pension and 401(k) plan. "We
just thought Boeing was mishandling our money," Mr. Bunk said of
how the suit began. "I never dreamed it would take this long."
The trial, expected to last about four weeks, is the oldest case
on the docket of U.S. District Judge Nancy Rosenstengel. "Nine
years of litigation has resulted in deep antagonism and hostile
posturing," Judge Rosenstengel wrote in a recent court order
encouraging the parties to settle, while acknowledging that such a
deal was unlikely.
Write to Sara Randazzo at sara.randazzo@wsj.com
Subscribe to WSJ: http://online.wsj.com?mod=djnwires
(END) Dow Jones Newswires
August 25, 2015 12:58 ET (16:58 GMT)
Copyright (c) 2015 Dow Jones & Company, Inc.
Boeing (NYSE:BA)
Historical Stock Chart
From Apr 2024 to May 2024
Boeing (NYSE:BA)
Historical Stock Chart
From May 2023 to May 2024