A class-action lawsuit that alleged that tens of thousands of participants in two General Dynamics 401K plans were charged excessive fees has been tentatively settled for $15.15 million. The lawsuit, representing current and retired employees who participated in the plans, was originally filed in federal court in 2006 against General Dynamics Corp. and Fiduciary Asset Management LLC of Clayton (FAMCO), as well as against executives of both companies.
The suit alleges, among other things, that billions of dollars worth of 401K business was handed to FAMCO without a competitive bidding process and that costs and fees for plan participants were inflated. In addition to the money, the settlement documents describe significant benefits that participants will have in their 401k plan going forward. The payout will come from insurance, and will be deposited into the 401k accounts after costs and fees are deducted. As part of the settlement, General Dynamics agreed to use an outside consultant to review parts of the 401k plans and “enhanced disclosure” of fees and expenses for the accounts, among other agreements.
The settlement bars FAMCO from recommending itself as investment manager for the accounts or recommending investment into accounts it manages. At press time, the settlement still required approval of a number of parties, including a federal judge and a representative of the account holders. A hearing in federal court in East St. Louis was held on August 9th to begin that process.
FAMCO was founded in 1994 by pension fund managers at General Dynamics. In 2007, the company was purchased by Piper Jaffray Cos., a Minneapolis investment banking firm. Jerome J. Schlichter represented the plan participants and did a very good job.
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