Lockheed Martin employees sue, claiming high-cost, low-return retirement plans

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Current and former employees of Lockheed Martin sued the company on Wednesday over what they claim is a high-cost, low-return, in-house retirement plan — a “leaching operation,” they say.

The employees, who sued in Maryland federal court, say the Bethesda-based defense contractor violated the Employee Retirement Income Security Act, or ERISA, costing those affected hundreds of millions of dollars since 2019.

The lawsuit takes aim at the Lockheed Martin Investment Management Company, abbreviated as LMIMCo, and the target-date funds it offered employees through their 401(k) plans.

“A loyal and prudent fiduciary would have selected a professional fund manager with a track record of success, rather than trusting its nepotistically-selected stepchild, with its history of underperformance,” the complaint states.

“In essence, contrary to what loyal fiduciaries would have done, Defendants ran a leaching operation that extracted value from Plaintiffs’ retirement savings.”

The lawsuit comes 10 years after Lockheed, the largest defense contractor in the world, settled a similar lawsuit over mismanagement of retirement benefits for $62 million. Reuters reported that the plaintiffs’ lawyers called it the “largest ever” case over excessive 401(k) fees.

Target-date funds, or TDFs, are diversified funds with an estimated retirement date. Employees generally enroll in the TDF for the year they turn 65. As they age, the fund transitions away from high-risk assets and toward low-risk ones.

The current and former employees are represented by Zuckerman Spaeder attorneys in Baltimore, New York and Washington, D.C., led by Cy Smith of Baltimore. Don Bivens, of Scottsdale, Arizona, is also among the plaintiffs’ lawyers.

Smith declined to comment, as did a spokesperson for Lockheed Martin.

The complaint says the funds chronically yielded lower returns than those offered by T. Rowe Price, Vanguard and Fidelity, while charging substantially higher fees. The LMIMCo funds were two to five times more expensive than better-performing ones offered by Vanguard, the complaint states. The in-house TDFs were the only TDF options in which employees could invest.

Because LMIMCO is a wholly owned subsidiary, the complaint alleges the defendants “paid themselves excessive and unreasonable fees using the 401(k) plans’ assets.” From 2019 through 2023, the complaint states, LMIMCO paid Lockheed Martin more than $166 million with those fees.

The plaintiffs argue the conduct violated ERISA, which requires that retirement plan fiduciaries use assets “for the exclusive purposes of providing benefits to participants in the plan and their beneficiaries and defraying reasonable expenses of administering the plan.”

The law “forbids retirement plan fiduciaries from allowing the assets of the Plans to ‘inure to the benefit of any employer,’ ” the complaint states, quoting the statute.

The named plaintiffs live in Alabama, California, Colorado, Florida and Washington State. They are seeking class-action status for all participants in or beneficiaries of the company’s retirement plans since March 19, 2019.

The complaint brings five causes of action, including three claims of breach of fiduciary duties and two claims of prohibited transactions.