Compliance

Sponsor Faces Class Action Challenge Alleging Self-Dealing

The complaint cites portions of key Northrop Grumman plan documents, challenging the process by which the company assembled and monitored both the administrative and investment committees.

By John Manganaro editors@plansponsor.com | September 16, 2016
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In another example of class action litigation spearheaded by the law firm of Schlichter, Bogard and Denton, participants in the Northrop Grumman Savings Plan accuse their plan sponsors and fiduciaries of paying excessive fees and using the benefit plan for purposes beyond exclusively promoting the financial well-being of employees.  

The proposed class was filed in the United States District Court for the Central District of California, Western Division, and cites 29 U.S.C. §1132(a)(2) and (3). Defendants named include “Northrop Grumman, the Northrop Grumman Savings Plan Administrative Committee, the Northrop Grumman Savings Plan Investment Committee, and the individual members of both committees and known delegees thereof for breach of fiduciary duties.”

According to the complaint, rather than complying with their strict fiduciary obligations, defendants “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 complaint cites portions of key Northrop Grumman plan documents, challenging the process by which the company assembled and monitored both the administrative and investment committees. According to plaintiffs, failures to train and supervise members of the plan committees allowed the plan to fall into the habit of paying excessive fees and of otherwise breaching the demands of fiduciary oversight and prudence.  

“The predominant administrative expense for a defined contribution retirement plan is recordkeeping,” plaintiffs suggest. “Recordkeeping for the Plan was provided by a third party for millions of dollars … No additional services were necessary to administer the Plan, or, if any additional services were necessary, they were limited and could have been provided by a third party. Defendants, however, caused the Plan to hire Northrop—that is, for Northrop to hire 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.”

NEXT: Further conflicts of interest alleged 

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