Compliance January 14, 2020

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

The defendants have agreed to pay a gross settlement amount of $12,375,000 to resolve all claims.

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A settlement agreement has been reached in a case accusing Northrop Grumman and its 401(k) administrative and investment committees of various breaches of Employee Retirement Income Security Act (ERISA) fiduciary duties.

While denying all liability for the claims made in the lawsuit and maintaining that they are without any fault or liability, the defendants have agreed to pay a gross settlement amount of $12,375,000 to resolve all claims.

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According to the original complaint, the defendants—including Northrop—“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. Defendants also caused the plan to pay unreasonable recordkeeping fees to the plan’s recordkeeper and mismanaged the plan’s emerging markets equity fund.”

The plaintiffs also accuse the plan and its administrative and investment committees of allowing its recordkeeper to receive fees from an agreement with Financial Engines to provide participants with investment advice.

In February 2018, most counts in the case were dismissed against the company, with the court finding it was not a fiduciary with respect to the acts alleged. However, Northrop Grumman did not escape the failure to monitor fiduciaries count.
Compliance January 14, 2020

First Facilitated Merger of Multiemployer Plans Approved by PBGC

Under the Multiemployer Pension Reform Act, if one or more of the plans in the merger is in critical and declining status and appears to become insolvent within 20 years, the agency can provide financial assistance for the merged plan(s) to remain solvent.

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The Pension Benefit Guaranty Corporation (PBGC) announced its first approved facilitated merger under the Multiemployer Pension Reform Act of 2014 (MPRA).

The MPRA gave the PBGC the authority to facilitate plan mergers under certain conditions. If one or more of the plans in the merger is in critical and declining status and appears to become insolvent within 20 years, the agency can provide financial assistance for the merged plan(s) to remain solvent.

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To help facilitate the merger of the Laborers International Union of North America 1000 Pension Fund (Local 1000 Plan) with the Laborers Local 235 Pension Fund (Local 235 Plan), PBGC will provide three annual installments of $8.9 million to the merged plan beginning this month.

The Local 235 Plan is a “green zone” plan covering over 1,100 participants. The Local 1000 Plan covers over 400 participants and was projected to become insolvent in 2026. PBGC expects that this merger will reduce the agency’s long-term loss with respect to the Local 1000 plan and will not affect participants and beneficiaries of the Local 235 Plan.

Six months after the MPRA was passed, 66% of sponsors of multiemployer plans surveyed by the International Foundation of Employee Benefit Plans (IFEBP) said the law would be somewhat, very or extremely helpful. At the time, 5% of responding plan sponsors were considering merging with better-funded plans.

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