Northrop Grumman has agreed to pay $21.5 million to settle a class action lawsuit brought by current and former employees who alleged the defense contractor mismanaged their retirement savings by keeping underperforming investment options in the company’s 401(k) plan and charging excessive fees. The settlement affects participants in the Northrop Grumman Savings Plan who had accounts during the class period.
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Status: Settlement Approved
What Were the Allegations?
The lawsuit accused Northrop Grumman of violating the Employee Retirement Income Security Act (ERISA), the federal law that governs employer-sponsored retirement plans. Under ERISA, plan sponsors have a fiduciary duty to act in the best interests of plan participants. This includes selecting and monitoring investment options, negotiating reasonable fees, and removing funds that consistently underperform.
The plaintiffs alleged that Northrop Grumman failed on several counts. They claimed the company included investment funds in the plan that charged significantly higher fees than comparable alternatives, and that these high-fee funds consistently underperformed lower-cost index funds. The lawsuit also alleged that Northrop Grumman failed to use its bargaining power as a massive employer to negotiate better fee arrangements with fund managers and recordkeepers.
Over time, even small differences in investment fees compound dramatically. A difference of half a percentage point in annual fees can reduce a retirement account’s value by tens of thousands of dollars over a 30-year career. The plaintiffs argued that Northrop Grumman’s failures cost plan participants millions of dollars in lost retirement savings.
Who Is Eligible?
The settlement class includes current and former Northrop Grumman employees who participated in the Northrop Grumman Savings Plan during the class period. This includes employees who contributed to the plan as well as those who had employer contributions made on their behalf. Participants do not need to prove they invested in the specific funds at issue — all plan participants during the relevant period are included.
Individual payment amounts will be calculated based on each participant’s account balance and investment history during the class period. People who had larger balances or who were invested in the high-fee funds for longer periods will receive larger payments.
A Growing Trend in Retirement Plan Lawsuits
The Northrop Grumman case is part of a wave of ERISA lawsuits targeting large employers over 401(k) plan management. Companies including Boeing, AT&T, Oracle, and dozens of others have faced similar claims. These cases have collectively resulted in billions of dollars in settlements and have pushed many employers to switch to lower-cost index funds and negotiate better fee arrangements for their employees.
If you participate in an employer-sponsored retirement plan, it is worth reviewing your plan’s investment options and fee disclosures. You have a legal right to this information under ERISA. If the fees seem high compared to widely available index funds, it may be worth raising the issue with your employer’s benefits department.
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This article is for informational purposes only and does not constitute legal advice. The information presented is based on publicly available court records and news reports. Written by Steve Levine for OpenClassActions.org.