Lockheed Martin Sued for In-House Management of 401(k) Plan

Lockheed Martin Corporation and its subsidiary investment management company have been sued by current and former plan participations for using an in-house service provider and affiliated target-date funds.

The aerospace and defense company was accused of violating its fiduciary duties of prudence and loyalty by taking a “DIY” approach to their 401(k) investments and creating a “home-grown, ineffective private investment funds,” and paying themselves “excessive and unreasonable fees” using the plans’ assets.

The lawsuit, Fezer et al v. Lockheed Martin Corporation et al, filed in the U.S. District Court of Maryland, concerns three of Lockheed’s 401(k) plans—the salaried plan, the bargaining plan and the capital plan. As of December 31, 2023, the salaried plan had approximately $47.267 billion in assets, the bargaining plan had approximately $2.171 billion in assets and the capital plan had approximately $267 million in assets.

Plaintiffs, represented by law firm Zuckerman Spaeder, accused Lockheed of violating their fiduciary duties of prudence and loyalty to more than 140,000 beneficiaries of their 401(k) plans by selecting and maintaining Lockheed Martin Investment Management Co. (LMIMCo) as the 401(k) plans’ manager, and by offering LMIMCo’s own “chronically under-performing high-cost TDFs” as investment options in their 401(k) plans.

LMIMCo. also began offering a private equity co-investment sleeve in the TDFs of the company’s DC plans last year. The most aggressive TDFs in Lockheed’s lineup only have about 7% invested in a private equity fund.

The lawsuit claimed that Lockheed’s decision to use its own in-house TDFs, which had “high fees” and had “worse performance” than other TDFs offered by independent investment managers, was “unusual.” Plaintiffs found that the in-house TDFs were two to five times more expensive than “better-performing” TDFs offered by Vanguard.

“Despite the plethora of higher-quality services and TDFs offered by reputable 401(k) plan managers like T. Rowe Price, Fidelity, and Vanguard, Lockheed employed its own subsidiary, LMIMCo, to manage its 401(k) plans,” the lawsuit stated.

Lockheed selected the in-house TDFs as the only TDFs available as investments in the 401(k) plans and made them the default, according to the lawsuit. The company also added more in-house TDFs between March 2019 and this year for younger workers with distant retirement dates.

The lawsuit further alleged that Lockheed marketed the in-house TDFs to participants in a way that made the funds sound like the only investment employees needed for retirement. For example, a Morningstar summary sent to beneficiaries said the funds were “a one-step approach to saving for retirement.”

“Because Lockheed has largely abandoned traditional pension plans … for new employees in recent decades in favor of … 401(k) plans, the plans represent substantially all the employer-sponsored retirement savings for tens of thousands of Lockheed employees,” the lawsuit stated. “Competent and loyal management of the plans was critical to the financial security and comfort in retirement for which plaintiffs worked and saved.”

The current and former employees are asking the court to declare that Lockheed breached its duties under the Employee Retirement Income Security Act of 1974, as well as order the disgorgement of all sums derived from the “improper” transactions.

A spokesperson from Lockheed Martin said, “In general, it is our company practice not to comment on ongoing litigation.”