Northrop Grumman Pays $12.4 Million to Settle 401(k) Lawsuit

Lawsuit said firm’s alleged fiduciary failures caused plan to lose over $13 million

Northrop Grumman has ended a 13-year legal battle by agreeing to pay $12.4 million to settle a class action lawsuit filed on behalf of the Northrop Grumman Savings Plan. The suit claimed the aerospace and defense company breached its fiduciary duty under the Employee Retirement Income Security Act (ERSIA).

The plaintiffs alleged that administrators of the company’s 401(k) plan engaged in prohibited transactions by distributing plan assets to Northrop as payment for administrative services and investment-related services it provided to the plan.

They also said Northrop paid unreasonable fees to the plan’s record-keeper Hewitt Associates, and failed to remove an underperforming actively managed emerging markets equity fund. Northrop also was accused of engaging in prohibited transactions in hiring and paying third-party service providers and failing to properly monitor the plan’s fiduciaries.

In the original complaint, the plaintiffs said Northrop’s directors and officers acted on behalf and for the benefit of the company, not the plan or its participants.

It said that rather than comply with their fiduciary obligations they “acted to benefit themselves and Northrop by paying plan assets to Northrop purportedly for administrative services Northrop provided to the plan, which were not necessary for administration of the plan or worth the amounts paid.”

The plaintiffs said that from 2009 through 2013, Northrop received between $1.7 million and $2.1 million per year from the plan, and that through 2015, Northrop had taken nearly $10 million from the plan.

“Had defendants performed their fiduciary duties, the plan would not have suffered over $13 million dollars in losses from mid-2009 through 2015,” said the complaint, adding that Northrop essentially hired itself “to provide purported administrative services, which served as a scheme to direct plan assets to Northrop that were not payments reasonably related to any service the plan needed or was provided.”

Court documents showed the settlement was the product of “extensive arm’s-length negotiation,” until the parties reached a deal after numerous mediation sessions and only after completing their trial preparations.

Under the settlement’s plan of allocation, the actual recovery per person will depend on the number of class members who are eligible for an award and their average account balances during the class period.

Current participants will automatically receive their distributions directly into their tax-deferred retirement accounts, while former participants will be allowed to receive their distributions in the form of a check made out to them individually or as a rollover into another tax-deferred account.


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