Compliance March 2, 2011

Court Gives Final Approval to 401(k) Fee Case

A U.S. District Court judge has granted final approval of an $18.5-million settlement in an excessive 401(k) fee suit.
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The agreement ends proceedings in Kanawai v. Bechtel Corp., in which two former Bechtel employees alleged the company violated its Employee Retirement Income Security Act (ERISA) fiduciary responsibilities by not using its size to get lower fees from vendors. 

Under the settlement agreement announced in October (see “Bechtel Settles 401(k) Fee Case for $18.5M“), Bechtel agreed for a three-year period to: 

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  • not use any of its own affiliates to act as the investment manager for the 401(k) plan, 
  • greatly enhance the disclosures it makes about investment and recordkeeping fees, 
  • not offer any retail mutual fund as an investment option and prohibit all of the plan’s separate account investment managers from investing in retail mutual funds, 
  • not use plan asset-based pricing for recordkeeping service fees, and 
  • conduct a competitive bidding process for recordkeeping services when the plan’s current contract with J.P. Morgan Retirement Plan Services expires, which is scheduled to occur no later than 2012

U.S. District Judge Charles R. Breyer of the U.S. District Court for the Northern District of California also approved a fee award of 30% of the net settlement fund (not to exceed $4,859,872.33) to class counsel, Schlichter Bogard & Denton, LLP, in addition to costs in the amount of $1,571,102.56. Each named plaintiff was awarded a $7,500 incentive award.  

In 2008, Breyer ruled that Bechtel did not engage in a prohibited transaction under ERISA with a “party in interest” barred under 406(a) or involving self-dealing in violation of 406(b) because the investment manager payments were not funded out of plan assets for most of the period in question (see “Case Sensitive:”Outside” Interests“).

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