Northern Trust Reaches $6.9M Settlement Over In-House TDFs

Northern Trust Co. has agreed to pay $6.9 million to settle a class action lawsuit challenging the use of the firm’s in-house target-date funds for its 401(k) plan.

The settlement agreement in Conlon et al v. The Northern Trust Co. et al., was filed on Monday in the U.S. District Court for the Northern District of Illinois, Eastern Division, and is still pending court approval.

The lawsuit dates back to 2021, when six participants in the Northern Trust Co. Thrift-Incentive Plan alleged in part that the company’s plan committee failed to prudently select and monitor investment options, both for performance and fees. Specifically, the plaintiffs called out the company’s decision to retain 11 Northern Trust Focus Funds, a target-date-fund suite from the firm’s asset management division, alleging that the funds underperformed consistently while on the plan’s investment menu.

The Northern Trust Focus Funds are organized as a collective investment trust and were the only target-date retirement investment options in the plan, according to the original complaint.

In March 2022, Northern Trust filed a motion to dismiss, arguing that the plaintiffs failed to cite a reasonable claim that the committee breached its fiduciary duties. However, in August 2022, U.S. District Judge Charles Ronald Norgle denied Northern Trust’s motion to dismiss the case. Norgle ruled that the plaintiffs had made enough of a case that the plan committee had neither sought the best investment options nor negotiated enough for the lowest fees.

Both parties announced in October 2024 that they had reached a tentative settlement agreement.

The Northern Trust Co. Thrift-Incentive Plan holds more than $2.9 billion in assets and has 14,170 participants, according to its 2023 Form 5500 filing.

According to the settlement agreement, the plan’s recordkeeper will provide the settlement administrator with all information necessary to send the settlement notices and carry out the plan of allocation no later than 10 business days before the notices are to be distributed.

The settlement applies to all participants and beneficiaries of the 401(k) plan who were invested in the Northern Trust Focus Funds at any time on or after June 1, 2015.

The plaintiffs in the case are represented by the Law Offices of Michael M. Mulder and Scott+Scott Attorneys at Law LLP, while Northern Trust is represented by Willkie Farr & Gallagher LLP.