Grocery chain Safeway and Aon Hewitt Investment Consulting Inc. agreed to pay a combined $8.5 million to end a proposed class action 401k lawsuit brought by Safeway employees, who claim the companies mismanaged their retirement savings by keeping high-cost investment options in their $1.9 billion 401k plan.
According to Law360, current and former Safeway employees asked a federal judge in U.S. District Court in Oakland, Calif., to sign off on the deal on Sept. 12, in which Safeway will pay $8 million and Aon Hewitt will pay $500,000 to compensate each of the roughly 35,000 class members based on the size of their accounts. Their attorneys asked for $2.8 million in fees from the $8.5 million settlement.
The 401k lawsuit, first filed in 2016, claimed that Safeway breached its fiduciary duties by selecting a target-date fund lineup that “charged excessive fees as compared to readily available alternatives.”
Safeway and Aon Hewitt did not admit to any wrongdoing as part of the settlement, according to court documents. “This agreement and the consideration provided hereunder are made in compromise of disputed claims and are not admissions of any liability of any kind, whether legal or factual. The defendants specifically deny any such liability or wrongdoing, and Safeway and Aon state that they are entering into the agreement solely to eliminate the burden and expense of protracted litigation,” court documents state.
Bloomberg Law reported back in early May that Aon Hewitt reached a proposed classwide settlement of the 401k lawsuit, just five days before the trial was scheduled to start. The amount of the settlement wasn’t disclosed at the time.
In addition to alleging that Aon Hewitt breached its fiduciary duties in the course of advising Safeway on five underperforming funds in the 401k plan, the complaint also claimed the plan charged high administrative fees and offered opaque, expensive, and poorly performing investment options.
Safeway’s 401k Plan has a BrightScope Rating of 48, compared to 60 being the average in its peer group. The top-rated plan in the peer group has a score of 85. The plan is in the top 15% of plans for Total Plan Cost.
For the average 401k participant, the 37-point difference between the Safeway plan’s BrightScope Rating (48) and the top rated plan (85) could equate to 17 years of additional work and $256,633 in lost savings.
SEE ALSO:
- MIT Settles Fidelity 401K ‘Quid Pro Quo’ Case
- Lawsuit Targets Fiduciary Failures of One of the ‘Most Expensive’ 401k Plans in U.S.
- Will Your Target-Date Fund Trigger a Fiduciary Lawsuit?
Veteran financial services industry journalist Brian Anderson joined 401(k) Specialist as Managing Editor in January 2019. He has led editorial content for a variety of well-known properties including Insurance Forums, Life Insurance Selling, National Underwriter Life & Health, and Senior Market Advisor. He has always maintained a focus on providing readers with timely, useful information intended to help them build their business.
