Northrop Grumman Pays $12.4 Million to Settle 401(k) Lawsuit

Northrop Grumman has ended a 13-year legal battle by agreeing to pay $12.4 million to settle a class action lawsuit filed on behalf of the Northrop Grumman Savings Plan. The suit claimed the aerospace and defense company breached its fiduciary duty under the Employee Retirement Income Security Act (ERSIA).

The plaintiffs alleged that administrators of the company’s 401(k) plan engaged in prohibited transactions by distributing plan assets to Northrop as payment for administrative services and investment-related services it provided to the plan.

They also said Northrop paid unreasonable fees to the plan’s record-keeper Hewitt Associates, and failed to remove an underperforming actively managed emerging markets equity fund. Northrop also was accused of engaging in prohibited transactions in hiring and paying third-party service providers and failing to properly monitor the plan’s fiduciaries.

In the original complaint, the plaintiffs said Northrop’s directors and officers acted on behalf and for the benefit of the company, not the plan or its participants.

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It said that rather than comply with their fiduciary obligations they “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.”

The plaintiffs said that from 2009 through 2013, Northrop received between $1.7 million and $2.1 million per year from the plan, and that through 2015, Northrop had taken nearly $10 million from the plan.

“Had defendants performed their fiduciary duties, the plan would not have suffered over $13 million dollars in losses from mid-2009 through 2015,” said the complaint, adding that Northrop essentially hired 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.”

Court documents showed the settlement was the product of “extensive arm’s-length negotiation,” until the parties reached a deal after numerous mediation sessions and only after completing their trial preparations.

Under the settlement’s plan of allocation, the actual recovery per person will depend on the number of class members who are eligible for an award and their average account balances during the class period.

Current participants will automatically receive their distributions directly into their tax-deferred retirement accounts, while former participants will be allowed to receive their distributions in the form of a check made out to them individually or as a rollover into another tax-deferred account.

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Tags: 401(k), ERISA, Hewitt Associates, Lawsuits, Northrop Grumman, Settlement

Family offices slashed their holdings in alternative investments by more than half in 2019 while increasing their allocations to equities and fixed income, according to a recent survey from research firm Peltz International.

The survey of 26 family offices found that they allocated 30% of their investments to equities–developed, followed by alternatives (25%), fixed income-developed (14%), fixed income-developing (7%), cash and cash equivalents (7%), and equity-developing (5%). The remainder consisted of “other” such as real estate.

In last year’s survey, Peltz found that alternative investments made up more than 52% of family office portfolios, while equities made up 22% of their portfolios, and fixed income accounted for 15% of their investments.

“In the alternatives space, real estate-direct, REITs and private equity-direct experienced increased allocations between 2018 and 2019,” Lois Peltz, president of Peltz International and author of the report, said in a statement. “However, hedge funds suffered a drop from 28% in 2018 to 22.4% in 2019. Private equity funds also saw a dip from 20% in 2018 to 19.1% in 2019.”

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Among alternative investments, the largest allocation was to real estate-direct (30%), followed by private equity-direct (25%), hedge funds (22%), private equity funds (19%), real estate investment trusts (3%) and commodities (1%).

“We asked a lot about the changes they expect going forward, and where they expect significant changes to occur,” Peltz told CIO. “At the top of the list was investing in technology, investing in ESG, and co-investing, and down toward the bottom of that list is investing in traditional investments and investing in established managers.”

Among the family offices surveyed, 76% said they expect investing in technology to experience the most significant increase, while 72% said the same of investing in ESG (72%), with 68% citing co-investing. Approximately 60% said they expect global investments to see the sharpest rise in investments, while 48% named alternative investments, followed by start-ups (38%), emerging managers (26%), established managers (22%) and traditional investments (21%).

The firm asked family offices to rank a list of possible “evolutionary changes,” and 83% of respondents said they expect to see significant increases in multi-family offices compared with 61% saying the same for single-family offices. The survey also found that more than 70% of respondents observe conflicts of interest in the family office community. They said some family offices are providing more services, starting companies, and looking for investors, which they say will lead to less collaboration as they start marketing to each other.

Of those surveyed, 54% do not offer product and services to others, however of the 46% who do, consulting, mergers and acquisitions, co-investing, private deals, real estate investment ideas, hedge funds, non-correlated alternatives, and special purpose vehicles were cited as the products and services they offer.