If there\u2019s a Mount Rushmore of ERISA class-action litigators, you better believe Jerry Schlichter\u2019s face is carved into it\u2014probably right next to a 408(b)(2) disclosure and a stack of mutual fund fee charts. And once again, the law firm of Schlichter Bogard LLC is back, targeting an old friend: Northrop Grumman. This makes lawsuit number three.<\/p>\n
Yes, that Northrop Grumman. The one that\u2019s been down this road before\u2014with a 2006 excessive fee case, and again in 2019. Apparently, the third time is the charm, or maybe just d\u00e9j\u00e0 vu with different plan language. This time, the suit is about how forfeiture assets were handled. Or, more specifically, mishandled.<\/p>\n
The complaint, filed on behalf of Brian Clouse, Steven Kawakami, Douglas Hoffelt, and Michael Winkler, accuses Northrop Grumman, its Benefit Plan Administrative Committee, and the obligatory John Does 1\u201317 (because ERISA litigation wouldn\u2019t be complete without some mystery fiduciaries), of breaching fiduciary duty by misallocating plan forfeitures in violation of ERISA and the Plan Document.<\/p>\n
Now here\u2019s where it gets interesting\u2014because, as is often the case, it\u2019s not just about what the fiduciaries did, but what the Plan Document told them to do. According to the plaintiffs, Section 7.04 of the plan required a strict forfeiture order of operations: first, restore unvested balances of rehired participants; second, pay plan administrative expenses; and only then, if there\u2019s any money left, reduce employer contributions. Pretty straightforward. No discretion. No wiggle room.<\/p>\n
But according to the lawsuit, Northrop didn\u2019t just miss a step\u2014they skipped the first two entirely. For six straight years, the complaint alleges, all forfeiture assets were funneled directly into reducing employer contributions. Plan expenses? Ignored. Reinstatement reserves? Nonexistent. The Plan allegedly said \u201cmust,\u201d and the fiduciaries allegedly said \u201cnah.\u201d<\/p>\n
That brings us to Section 7.05\u2014another nail in the fiduciary coffin, if true. This section allegedly required maintaining a forfeiture reserve for five years in case former participants were rehired. Not only was this not done, but the suit claims every dollar of forfeitures was rerouted to benefit Northrop\u2019s bottom line instead of serving participant interests.<\/p>\n
Let me say this plainly: ERISA doesn\u2019t care how expensive recordkeeping fees are or how many lawyers reviewed the plan design. If the document says \u201cmust,\u201d and you treat it like \u201cmay,\u201d you\u2019re asking for trouble. And with over 100,000 participants and $36 billion in plan assets, that\u2019s a big target.<\/p>\n
So, what does this mean? Well, if these allegations hold water, don\u2019t expect this to get to trial. Mandatory plan language is plaintiff gold. And if you\u2019re betting on whether Northrop Grumman reaches for their checkbook before or after discovery heats up, take the \u201cbefore.\u201d<\/p>\n
The takeaway? Always, always, check your forfeiture language. Fiduciaries don\u2019t get to rewrite \u201cshall\u201d into \u201cwhatever seems reasonable at the time.\u201d<\/p>\n
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