Northern Trust Reaches Tentative Settlement in 401(k) Suit

Northern Trust Co. has reached a tentative settlement in a class action lawsuit challenging in part the use of in-house target date funds in its company benefit plan.

A settlement would end a dispute dating back to 2021 when six participants in the Northern Trust Company 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, plaintiffs called out the defendants’ decision to retain 11 Northern Trust Focus Funds, a TDF suite from the firm’s asset management division.

The terms of the settlement will be considered in an “off-the-record” call on October 30 with Judge Keri L. Holleb Hotaling of the U.S. District Court for the Northern District of Illinois, according to a court filing Thursday. The agreement will require court approval.

Plaintiffs in the case, Conlon et al v. The Northern Trust Company et al., are represented by lead attorneys with The Law Offices of Michael M. Mulder and Scott+Scott Attorneys at Law LLP; lead attorneys for Northern Trust are with Willkie Farr & Gallagher LLP.

In March 2022, Northern Trust had sought to get the case dismissed for failure by the plaintiffs to cite a reasonable claim that the committee breached fiduciary duties. The defendants argued that the plan committee had followed correct procedures, and that the Employee Retirement Income Security Act does not mandate what kind of benefits employers must provide, so long as they follow proper and prudent processes.

In August 2022, Judge Charles Ronald Norgle denied the appeal, siding with the defendants and moving the case to discovery.

In that opinion, Norgle ruled that plaintiffs had made enough of a case that the plan committee had not sought the best investment options nor negotiated enough for the lowest fees—both acts that may have hindered participant saving outcomes. Norgle pointed, in part, to allegations in the compliant that the Northern Trust Focus Funds had been the only TDF investing option in the plan and were being used as the default investment—even though the funds had underperformed relative to benchmark indices and comparable TDFs for three years.

“After being included in the Plan, the Focus Funds continued to underperform and generated unreasonable fees, so their retention shows that Defendants followed no prudent management process,” he wrote.

Norgle went on to cite the 2014 Supreme Court decision in Fifth Third Bancorp v. Dudenhoeffer that acknowledges the various “circumstances facing an ERISA fiduciary” and says that a court must “give due regard to the range of reasonable judgments a fiduciary may make based on her experience and expertise.”

He then, however, went on to cite the Supreme Court’s 2022 ruling in Hughes vs. Northwestern University, in which the court rejected a “categorical rule that would bar breach of fiduciary duty claims” if defendants can provide an adequate roster of competing investment choices. In citing that rule, Norgle pointed to the line that if “the fiduciaries fail to remove an imprudent investment from the plan within a reasonable time, they breach their duty.”

The Northern Trust Company Thrift-Incentive Plan held $2.9 billion in assets as of the end of 2023, according to a Form 5500 filing.

Neither Northern Trust nor plaintiffs’ attorneys responded to request for comment regarding terms of the settlement.

In September, Salesforce Inc. settled a pair of 401(k) lawsuits alleging excessive retirement plan fees—including allegations of not swapping out lower-cost and underperforming investment options—for $1.35 million. Those complaints, both by participants, were focused on the company’s $5 billion 401(k) plan.