Settlement Entered in Kraft Excessive Fees Case

March 7, 2012 (PLANSPONSOR.com) – Kraft Foods Global agreed to pay $9.5 million to settle a lawsuit over excessive fees for its 401(k) plan investments.

 

In the long-running case of George v. Kraft Foods Global, Inc., et al., the plaintiffs allege that Kraft violated its Employee Retirement Income Security Act (ERISA) fiduciary duties by allowing excessive fees, holding excessive cash within the plan’s company stock funds and offering imprudent funds as investment options.  

Last July, U.S. District Judge Ruben Castillo, of the U.S. District Court for the Northern District of Illinois concluded that a jury could find that “a reasonably prudent business person with the interests of all the beneficiaries at heart” would have banned actively managed funds from their 401(k) plan as they had done in the Kraft defined benefit plan because they had concluded that active funds did not consistently outperform index managers (see “Kraft Revisited: Treat DC and DB Investment Selection the Same“).  

A district court previously ruled Kraft had met the ERISA requirements for fiduciary behavior in monitoring its recordkeeping service agreement with Hewitt regarding the Kraft Foods Global Inc. Thrift Plan, and investigating and then deciding to unitize its company stock funds. However, the 7th U.S. Circuit Court of Appeals sent that claim back to the district court, saying there was a genuine issue of material fact as to whether Kraft acted prudently.  

“After more than five years of litigation, to avoid the additional uncertainties and costs associated with continued litigation, the parties have reached a mutual resolution to this case,” the settlement agreement stated.