BOSTON Aug 12 A federal appeals court handed a
procedural victory to plaintiffs who say their Lockheed Martin
Corp retirement plans were badly run, a boost for the
closely watched lawsuit against the large 401(k) sponsor.
A panel of judges in the Seventh Circuit last week reversed
a lower court decision that denied class certification to
workers and beneficiaries with investments in a so-called
"stable value fund" that Lockheed offered.
Among other things, the lawsuit accused Lockheed of
imprudent management, saying its stable value fund delivered sub
par returns by holding money market funds rather than a better
mix of short and intermediate-term investments.
The plaintiffs say the fund underperformed an index of other
stable value funds - the Hueler FirstSource index - and did not
keep pace with inflation.
Stable value funds aim to protect investors' capital while
yielding predictable returns that are smaller than those of more
aggressive funds. Many use bonds paired with insurance
Stable value funds are a mainstay of many
defined-contribution plans and their assets are growing. Out of
12,000 401(k) plans tracked by Brightscope Inc, stable value
funds or similar vehicles held $339 billion in assets at the end
of 2011, up from $317 billion in year-end 2009, data by the San
Diego research firm focused on retirement products showed.
A typical concern of financial advisers is whether a stable
value fund is producing enough returns to justify the fees it
charges to maintain a complex set of underlying investments. But
the Lockheed case raises the opposite concern, in which the
plaintiffs essentially charge the fund was slacking off.
The ruling will strengthen claims on behalf of 56,000
investors who now will not have sue individually, said
plaintiff's attorney Jerome Schlichter.
"This decision means if imprudent management causes poor
performance in the 401(k) plan, plan fiduciaries are on the hook
for the full damages," Schlichter said in a telephone interview
on Friday. Other parts of the case were already on track to
proceed as class actions, he said, such as claims of excessive
With $19.8 billion in assets, Lockheed's 401(k) plan for
salaried workers is the sixth largest 401(k), according
Brightscope. It had 93,222 participants. (The largest 401(k)
plan was run by International Business Machines Corp, and had
$37.6 billion in assets and 106,569 participants). Plaintiffs in
the lawsuit against Lockheed had investments in both the plan
for salaried workers and one for hourly workers.
Lockheed spokesman Gordon Johndroe said the Maryland defense
contractor is reviewing the decision and will evaluate its
"We will continue to defend against this lawsuit at all
stages of the litigation," he said in an e-mailed statement.
Schlichter's St. Louis firm has pursued a series of cases
scrutinizing the management of retirement savings plans as
companies move away from traditional pensions. Often his cases
focus on allegations that funds charged excessive fees to plan
Many 401(k)s are run by outside asset managers, exposing
mutual fund firms to the litigation. Last year, for instance,
Schlichter won a ruling that Fidelity Investments of Boston and
ABB Inc, a unit of Swiss manufacturer ABB Ltd,
violated federal law by causing ABB workers and retirees to pay
excessive fees in their 401(k) plan.
Representatives for ABB and Fidelity said they have appealed
The case is Anthony Abbott, et al, v. Lockheed Martin Corp
and Lockheed Martin Investment Management Co, United States
Court of Appeals for the Seventh Circuit, No. 12-3736.