GE Agrees to Pay Record $61M to Settle 401(k) Lawsuit

After six years of litigation, General Electric Co. has agreed to pay $61 million to settle class action claims in Haskins et al v. General Electric Co. et al that underperforming funds were the only actively managed options available to plan participants, costing employees millions of dollars, according to the settlement agreement filed by the plaintiff.

A court filing from the plaintiffs stated that the settlement is the largest in an ERISA case alleging a retirement plan improperly offered proprietary funds.

In the original complaint, filed in 2017, Kristi Haskins, Laura Scully and Donald Janak, all participants of GE’s 401(k) plan, alleged that GE representatives encouraged the plan’s participants at company meetings to invest their 401(k) account assets in GE’s proprietary mutual funds, which GE Asset Management managed until July 1, 2016. The plaintiffs, represented by Sanford Heisler Sharp LLP, claimed these funds underperformed relative to comparable investment options since at least 2011.

The participants further claimed that GE refused to consider adding comparable, better-performing funds, removing any of the GE funds or replacing the managers and that GE breached its ERISA duties of loyalty and prudence to monitor and remove the funds from the plan.

Around the same time these alleged breaches took place, GE was considering potential buyers for GEAM, which was ultimately sold to State Street Advisors for $485 million in 2016. The participants claimed that GE kept the underperforming funds to keep GEAM’s assets under management elevated and to collect fees, inflate the sale price of GEAM and use the proceeds to pay down debt GE owed to its underfunded defined benefit pension plan.

The plaintiffs’ damages expert calculated reasonable recoverable damages to be approximately $283 million, the court filing stated. The cash settlement of $61 million represents approximately 21.5% of the alleged damages. The attorneys representing the class of similarly affected plaintiffs will also apply for “reasonable attorney’s fees” of up to one-third of the settlement amount.

The class represents about 250,000 GE employees participating in the plan during the class period from January 11, 2011, through June 30, 2016.

Charles Field, chair of the financial services litigation group at Sanford Heisler Sharp, wrote in a statement, “We are pleased to have achieved an ERISA settlement of this magnitude, the largest ever in an ERISA case alleging a retirement plan improperly offered proprietary funds. It is a great result for GE employees who had invested in the GE Funds.” 

The settlement must be approved by the United States District Court for the District of Massachusetts. A preliminary hearing has been scheduled for October 17.

GE, represented by attorney James Fleckner of Goodwin Procter, sent the following statement:

“While we deny the claims made in this lawsuit, we are pleased to put this matter behind us,” a GE spokesperson said. “We continue to manage our 401(k) plan in the best interests of participants.”