Proposed $62 Million Settlement Submitted for Approval in Lockheed 401(k) Excessive Fee Litigation

By Joseph A. Garofolo

On February 20, 2015, the parties in Abbott, et al. v. Lockheed Martin Corporation, et al., No. 06-cv-701-MJR-DGW, filed their joint motion for preliminary approval of a class action settlement.  Plaintiffs’ counsel touted the proposed settlement as the “the largest ever for a case of this nature.”  (Plaintiffs’ Memorandum in Support of Joint Motion for Preliminary Approval of Settlement at 1).

The lawsuit, pending in the United States District Court for the Southern District of Illinois, alleges fiduciary breaches of ERISA and prohibited transactions relating to fees and expenses paid from assets of two 401(k) plans sponsored by Lockheed Martin.  The suit also asserts that plan fiduciaries improperly managed company stock funds and a stable value fund.

If approved by the court, defendants would pay $62 million into a settlement account.  In addition, defendants have agreed to, inter alia, implement competitive bidding for recordkeeping services provided to the plans and to offer plan participants investment share classes with the lowest expense ratio with certain caveats.

Based on the plaintiffs’ briefing in support of the joint motion, class counsel will request not more than one-third ($20,666,667) of the $62 million cash settlement fund and costs of not more than $1,850,000.

The terms of the proposed settlement will be reviewed by an independent fiduciary pursuant to Department of Labor Prohibited Transaction Class Exemption 2003-39.

The lawsuit was commenced more than eight years ago and decisions of the district court have been appealed multiple times.  The settlement agreement with its exhibits, including Exhibit 3 (the proposed notice to class members), can be reviewed here.

It is the author’s opinion that the proposed settlement is likely to be approved by the court.



Courts Continue to Permit Expert Testimony on a Variety of ERISA Issues

By Joseph A. Garofolo

In Abbott, et al. v. Lockheed Martin Corporation, et al.—the 401(k) plan excessive fee lawsuit in which a provisional settlement was recently reached—expert testimony was almost certain to play a critical role had the case proceeded to trial.  Just before the provisional settlement was reported, as a potential prelude to the clash between experts if the case had continued, the United States District Court for the Southern District of Illinois ruled that it would permit a supplemental expert report of one of the plaintiffs’ experts.  In his supplemental report, the plaintiffs’ expert opined that plan “fiduciaries’ attempts (or lack thereof) to explore alternative recordkeeping and administrative processes contributed to the excessive amount of fees assessed against Plan participants over the years.”  (Order dated December 14, 2014 at 1).

As evidenced by the Abbott litigation, expert testimony can take center stage in ERISA cases all the way up to trial.  But what is the basis for allowing such testimony and what issues have experts been permitted to opine upon in ERISA cases?

To begin with, Rule 702 of the Federal Rules of Evidence focuses on the expert’s qualifications, the reliability of the proffered testimony, and whether the testimony is helpful to the trier of fact.  And Rule 704 declares that “[a]n opinion is not objectionable just because it embraces an ultimate issue.”

In light of the guidance provided by Rules 702 and 704 of the Federal Rules of Evidence, it is not surprising that federal courts across the circuits have permitted expert testimony regarding a variety of ERISA issues.  See, e.g., Hans v. Tharaldson, 2011 U.S. Dist. LEXIS 151083, at *17 (D.N.D. Dec. 23, 2011) (expert “may testify about the duty to act prudently, the standard of care applicable to a fiduciary in this situation, how [defendant’s] actions deviated from the applicable standard of care, and/or why he believes [the] . . . analysis [of the other side’s expert] is flawed”); In re Iron Workers Local 25 Pension Fund, 2011 U.S. Dist. LEXIS 34505, *15-*16 (E.D. Mich. Mar. 31, 2011); Stinker Stores, Inc. v. Nationwide Agribusiness Ins. & Order Co., 2010 U.S. Dist. LEXIS 31643, at *11-*12 (D. Idaho Mar. 31, 2010) (expert opinions would be “helpful to the jury in understanding relevant issues of employee benefit administration and ERISA, and the application of relevant . . . policy language to the day-to-day practice of employee benefits administration”); In re Reliant Energy ERISA Litig., 2005 U.S. Dist. LEXIS 48034, at *8 (S.D. Tex. Aug. 18, 2005) (expert “opinions on specific issues, such as whether Defendants were ERISA fiduciaries for certain relevant purposes” could be helpful to the court); Engers v. AT&T (In re Engers), 2005 U.S. Dist. LEXIS 41693, at *3, *10 (D.N.J. Aug. 10, 2005); Stuart Park Assocs. Ltd. Partnership v. Ameritech Pension Trust, 51 F.3d 1319, 1327 (7th Cir. 1995).

In what might actually be an understatement, one court explained that the “interactions of ERISA, the [Internal Revenue Code], and their accompanying regulations were ‘sufficiently esoteric’ to the uninitiated factfinder to justify expert witness opinion testimony under Rule 702.”  Proujansky v. Blau, 2000 U.S. Dist. LEXIS 786, at *23 (S.D.N.Y. Jan. 27, 2000).

Moreover, since most ERISA cases are bench trials, in the author’s experience, the admissibility of expert testimony may remain unresolved at trial because a judge may be inclined to delay a ruling on challenged expert testimony until after trial.

Thus, it is likely that experts will continue to assume an important role in ERISA litigation, especially in cases involving complex issues or alleged breaches of fiduciary duty.