Amid concerns that 401(k) fees are eating into workers' retirement savings, Caterpillar announced this month that it will settle a lawsuit that alleged its 401(k) plans levied excessive fees. Under the settlement, which still has to be approved by the court, the company will pay $16.5 million to 80,000 participants and former participants in its 401(k) plans.
The lawsuit, which was filed in 2006, also cited the Caterpillar 401(k) plans' use of retail mutual funds rather than separate accounts and the fact that up until 2006, the plans used investment options provided by the Preferred Group of Mutual Funds, then owned by Caterpillar.
"The tentative settlement is not an admission of wrongdoing on the part of Caterpillar," says company spokesman Jim Dugan. "We believe we would have prevailed in the end. However, we made a strategic decision that it didn't make sense for Caterpillar to spend perhaps five to seven years in litigation involving extremely complex and technical regulations, and in particular litigating over a part of our business that we exited in 2006." Caterpillar sold its mutual funds unit to T. Rowe price in 2006.
In addition to paying the $16.5 million, Caterpillar has agreed to retain an independent fiduciary to monitor its 401(k) plans during a two-year settlement period. It also agreed to exclude retail mutual funds from the plans' core investment options, limit cash holdings in the company stock fund option, and increase communication with employees about the 401(k) plans during that two-year period.
The Caterpillar lawsuit was one of 14 filed against large U.S. employers by the St. Louis law firm of Schlichter Bogard & Denton. The law firm's lawsuits against Deere and United Technologies were dismissed, but it is appealing both cases; the other lawsuits are still making their way through the court system. Meanwhile, Congress is considering legislation that would require more disclosure of 401(k) fees.