In the United States, plaintiffs alleging that their DC retirement plans offered by Lockheed Martin Corp. were managed imprudently won a round in a federal appeals court.
Judges in the Seventh Circuit recently reversed a lower court decision that denied class certification to workers and beneficiaries with investments in a stable value fund (SVF)—one of the investment options offered to plan members by Lockheed, a Maryland-based aerospace and security company.
Plaintiffs contend that Lockheed violated its fiduciary duty and managed the fund without prudence. They say the SVF failed to yield sufficient returns and to beat inflation because it primarily contained short-term money market investments rather than a mix of short- and medium-term investments the way SVFs are supposed to.
The lawsuit claims that Lockheed’s SVF underperformed an index of other SVFs, the Hueler FirstSource index.
SVFs are typically available only through employer-sponsored retirement plans. Their goal is to shield investors’ capital while delivering smaller predictable returns.
To offer the stability they advertise, SVFs are provided through “wrap” contracts with banks or insurance companies that guarantee the fund’s principal and protect it from interest rate volatility.
Before this ruling, other parts of the case, such as claims of excessive recordkeeping fees, had already been set to proceed as class actions, according to Jerome Schlichter, the attorney of the plaintiffs.
Plaintiffs had investments in Lockheed’s plans for both salaried and hourly employees.
Lockheed has questioned the legal grounds of the case.