Nov. 21 — American Airlines Inc. agreed to pay $8.8 million to settle claims that it hurt airline workers’ retirement savings by offering a poorly performing credit union fund in its 401(k) plan, but a federal judge is concerned that the deal is too skimpy ( Ortiz v. Am. Airlines, Inc. , 2016 BL 386004, N.D. Tex., No. 4:16-cv-00151-A, 11/18/16 ).
The lawsuit claimed that American Airlines shortchanged workers by allowing more than $1 billion in 401(k) assets to be invested in a credit union fund that failed to outpace inflation, rather than a stable value fund that would provide a higher, guaranteed return. In refusing to bless the proposed deal, the judge said Nov. 18 that $8.8 million may be “inadequate,” because workers may have lost out on as much as $88 million in expected returns over the past six years.
Stable value funds—which are aimed at preserving capital and providing a guaranteed rate of return—are offered by more than 80 percent of large 401(k) plans, according to a 2015 study by Metropolitan Life Insurance Co. In August, a federal judge rejected the novel legal theory that a 401(k) plan fiduciary can be liable under the Employee Retirement Income Security Act for failing to offer a stable value fund. In that case, the judge said that Chevron Corp.'s retirement plan satisfied its legal duties by offering a money market fund, which plan participants challenged as inferior to a stable fund because of its lower return and lack of guaranteed interest rate.
In the American Airlines case, Judge John McBryde of the U.S. District Court for the Northern District of Texas offered some indication of how he would rule if the case went forward without a settlement. After noting that the workers appeared to have lost out on between $55 million and $88 million as a result of the defendants’ conduct, McBryde said that “if this action were to be pursued through litigation rather than by settlement, such an outcome would appear likely.”
McBryde also expressed concern about the rights that workers would be giving up under the proposed settlement agreement. According to McBryde, the settlement shouldn’t include “covenant-not-to-sue language” that is broader than the claims being settled.
Schneider Wallace Cottrell Konecky Wotkyns LLP and Friedman Suder & Cooke PC represent the workers. O’Melveny & Myers LLP and Kelly Hart & Hallman represent American Airlines. Jackson Walker LLP represents the airline’s credit union.
To contact the reporter on this story: Jacklyn Wille in Washington at email@example.com
To contact the editor responsible for this story: Jo-el J. Meyer at firstname.lastname@example.org
Copyright © 2016 The Bureau of National Affairs, Inc. All Rights Reserved.
All Bloomberg BNA treatises are available on standing order, which ensures you will always receive the most current edition of the book or supplement of the title you have ordered from Bloomberg BNA’s book division. As soon as a new supplement or edition is published (usually annually) for a title you’ve previously purchased and requested to be placed on standing order, we’ll ship it to you to review for 30 days without any obligation. During this period, you can either (a) honor the invoice and receive a 5% discount (in addition to any other discounts you may qualify for) off the then-current price of the update, plus shipping and handling or (b) return the book(s), in which case, your invoice will be cancelled upon receipt of the book(s). Call us for a prepaid UPS label for your return. It’s as simple and easy as that. Most importantly, standing orders mean you will never have to worry about the timeliness of the information you’re relying on. And, you may discontinue standing orders at any time by contacting us at 1.800.960.1220 or by sending an email to email@example.com.
Put me on standing order at a 5% discount off list price of all future updates, in addition to any other discounts I may quality for. (Returnable within 30 days.)
Notify me when updates are available (No standing order will be created).
This Bloomberg BNA report is available on standing order, which ensures you will all receive the latest edition. This report is updated annually and we will send you the latest edition once it has been published. By signing up for standing order you will never have to worry about the timeliness of the information you need. And, you may discontinue standing orders at any time by contacting us at 1.800.372.1033, option 5, or by sending us an email to firstname.lastname@example.org.
Put me on standing order
Notify me when new releases are available (no standing order will be created)