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Northrop Grumman Agrees to Settle 401(k) Excessive Fee Suit

Northrop Grumman has agreed to pay $12,375,000 to settle a class action brought under the Employee Retirement Income Security Act (“ERISA”) by participants in its 401(k) plan. The parties reached the initial terms of this settlement last year minutes before the start of the trial.

The plaintiffs alleged in their complaint that the company’s administration of the 401(k) plan harmed the plan’s participants by using a costly management strategy for a risky investment fund and by using plan assets to overpay for administrative services.

The long legal battle began in 2006 with a related lawsuit alleging that the plan was paying excessive administrative fees. That case was settled for $16,750,000 in 2017, but it limited the damages period to May 11, 2009. The participants of the 401(k) plan alleged that they continued to be charged excessive fees after the damages period in the first lawsuit ended and the current class action was brought in 2016 on similar claims. By August 2019, the only claim that remained in the case asserted that Northrop violated its fiduciary duties by choosing an active-management style for the emerging markets fund instead of a low-cost passive-management style. Northrop switched to a passive management style in 2014.

The proposed $12,375,000 settlement fund will be used to pay participants of the 401(k) plan, $25,000 incentive payments to each of the six named plaintiffs, attorneys’ fees and costs. The court has set a preliminary approval hearing for the settlement on January 31st.

The important take-away for employers who act as fiduciaries of their benefit plans is that they are obligated to act both substantively and procedurally prudent at all times. A fiduciary can aid its defense in a future lawsuit by documenting the processes used for all decisions connected to the administration of the plan. A plan administrator does not have to be omnipotent but must be able to show the processes leading to the ultimate decisions were prudent.

Jackson Lewis P.C. © 2020


About this Author

Jean Y. Yu Los Angeles Employment Lawyer

Jean Y. Yu is a Principal in the Los Angeles, California office of Jackson Lewis P.C.

Ms. Yu has experience in employee benefits, Employee Retirement Income Security Act, multiemployer, collective bargaining, executive compensation and corporate transactions.

Employee Benefits and ERISA

  • Designs and implements traditional retirement plans (e.g., 401(k), profit-sharing, and pension plans), health and welfare plans, and...
Donald P. Sullivan Employment Lawyer Jackson Lewis

Donald P. Sullivan is a Principal in the San Francisco, California, office of Jackson Lewis P.C. Mr. Sullivan has more than 20 years of experience defending and counseling employers, as well as fiduciaries and sponsors of employee benefit plans, in state and federal courts and before state and federal agencies, including the United States Department of Labor, the Equal Employment Opportunity Commission, and California’s Departments of Industrial Relations and Fair Employment and Housing. 

In his employee benefits practice, Mr. Sullivan regularly advises and represents both pension and welfare benefit plans and their fiduciaries in disputes involving alleged breaches of fiduciary duty, medical necessity of treatments and appropriate levels of care, application of managed care contracts with providers, miscalculation of benefits and provider reimbursement rates, and investigations by the Department of Labor. In his employment practice, Mr. Sullivan defends clients in cases alleging violations of the California Labor Code related to the payment of wages, as well as in lawsuits alleging discrimination on the basis of race, gender, age and disability in violation of California’s Fair Employment and Housing Act and federal statutes, including Title VII, the ADA, and the ADEA. He has extensive experience defending both single-plaintiff and class action ERISA and California wage and hour lawsuits. Integral to Mr. Sullivan’s practice are the privacy protections afforded to individuals under the Health Insurance Portability and Accountability Act (HIPAA).

Mr. Sullivan’s interest and commitment to the employment and employee benefits practice has very deep roots. In college, he worked for the Office of Labor Relations and Collective Bargaining for Washington, D.C. He worked for the U.S. Equal Employment Opportunity Commission while in law school. After law school, he began representing employers and management in employment and labor disputes, while developing a sub-specialty in employee benefits, ERISA, and healthcare. Mr. Sullivan was a law clerk for the Honorable Everett A. Martin, Fourth Judicial Circuit of Virginia, 1996-1997. Before joining Jackson Lewis, Mr. Sullivan practiced in the Chambers USA awarding-wining labor and employment group of a national Philadelphia-based law firm.