BA Boeing Co

By Sara Randazzo 

A St. Louis plaintiff's lawyer known for waging yearslong battles to improve employee retirement plans is about to take on his biggest target yet: Boeing Co.

In a trial slated to begin Wednesday in East St. Louis, Ill., federal court, a judge will weigh whether Boeing mishandled its 401(k) plan by offering imprudent investment options and allowing excessive fees to get passed on to employees. The class-action suit, filed on behalf of 190,000 Boeing employees and retirees, has been in court for almost a decade.

The company has vowed to fight the suit, one of only a few such cases to go to trial. Boeing said it "strongly disagrees with the claims" and is prepared to show that its investment options and fees have been in line with industry standards.

Backing the suit is Jerome Schlichter, a personal-injury and civil-rights lawyer who since 2006 has gone after companies for alleged violations of the complex Employee Retirement Income Security Act, or ERISA. Since then, he has filed 18 suits against major corporations over purported 401(k) violations. The lawsuit against Boeing, filed in September 2006, was one of the first.

Eight settlements have resulted in more than $214 million in payouts, with $70 million of that going to 67-year-old Mr. Schlichter and his law firm, Schlichter Bogard & Denton LLP. The settlements also required the companies to make permanent changes to their retirement plan practices. Six of his cases are pending, including one that went to the U.S. Supreme Court earlier this year, and four others have been dismissed.

As defined-benefit pension plans in the private sector are phased out, more Americans have come to rely on 401(k) plans, which allow employees to save pretax dollars, for their retirement. Of the $24.9 trillion in U.S. retirement assets at the end of March, 18.7% was in 401(k) plans, according to the Investment Company Institute, a mutual-fund trade group. That is up from 15.5% of the $14.2 trillion retirement market in 2008.

Boeing's $44 billion 401(k) plan is the second-largest in the nation, according to the Labor Department.

The lawsuit accuses Boeing of failing to uphold its fiduciary duties to employees by allowing excessive fees to go unchecked, choosing higher-cost retail mutual funds over cheaper options, and improperly making 401(k) plan decisions to benefit vendors receiving other Boeing business.

In court documents, the plaintiffs say Boeing employees each paid $103 for administrative services in 2005, when a plan of its size should have charged no more than $42, according to an expert hired by the plaintiffs. Between 1997 and 2005, the plan overpaid for record-keeping and administrative services by $35.4 million, according to the hired expert.

In 2007, the company reduced its per-employee fees to $32 after putting out a bid for a new contract, court filings show.

The class action also criticizes Boeing for including options to invest in the company's own stock and in a money-losing technology-sector fund.

In a deposition, one former Boeing executive defended the tech fund, saying the investment was optional. "An individual has the right to shoot themself (sic) in the foot if they so desire," the executive said. "They pay the price."

In court papers, Boeing, represented by O'Melveny & Myers LLP and Bryan Cave LLP, said that it isn't the company's fault if a particular investment underperformed. "There is no crystal-ball requirement in ERISA," the company said in a 2009 court filing.

Across the country, 401(k) plan fees dropped by an average of 10 basis points between 2009 and 2012, according to a study released last year by BrightScope Inc., a company that rates 401(k) plans, and the Investment Company Institute.

Some industry experts say the fee reductions are the natural evolution of an industry that has been in existence only since the 1980s.

Mike Alfred, the chief executive of BrightScope, said he believes the string of class-action lawsuits has improved industry practices--though he added that some companies named in the suits, including Boeing, have had strong overall 401(k) plans compared with the rest of the market.

Mr. Schlichter, the son of an aircraft mechanic, said he was inspired to look into the industry after watching his mother survive on his father's federal pension. "She didn't have to worry about stocks and fees," he said. Making sure companies are upholding their fiduciary responsibilities, he said, "levels the playing field for an unsophisticated employee."

One Boeing employee who is an original party to the suit is John Bunk, an aircraft assembly inspector who took a retirement buyout from the company in May. Now, he is living on an Alpaca farm in Illinois and relying on both a Boeing pension and 401(k) plan. "We just thought Boeing was mishandling our money," Mr. Bunk said of how the suit began. "I never dreamed it would take this long."

The trial, expected to last about four weeks, is the oldest case on the docket of U.S. District Judge Nancy Rosenstengel. "Nine years of litigation has resulted in deep antagonism and hostile posturing," Judge Rosenstengel wrote in a recent court order encouraging the parties to settle, while acknowledging that such a deal was unlikely.

Write to Sara Randazzo at sara.randazzo@wsj.com

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(END) Dow Jones Newswires

August 25, 2015 12:37 ET (16:37 GMT)

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