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Court Allows 401(k) Participants to Bring a Class Action Alleging Imprudent Selection of Investment Options

In Abbott v. Lockheed Corp., a federal appeals court agreed with AARP that a group of participants in Lockheed Martin's 401(k) plans challenging plan investments could proceed as a class action.


In 2006, five employees who participated in two of Lockheed Martin's 401(k) plans brought suit on behalf of a proposed class of similarly situated employees, alleging that plan fiduciaries breached their duties with respect to plan investments when they offered imprudent investment options in violation of the federal Employee Retirement Income Security Act (ERISA), the main law overseeing employee benefits..

The federal district court held that the proposed class description for the prudence claim was not sufficiently focused to allow the claims to be litigated as a class action.  The participants appealed denial of the class certification.

Reversing the district court, the U.S. Court of Appeals for the Seventh Circuit found that the proposed class definition was narrowly drawn so as to exclude any participants who may have benefited from Lockheed Martin's alleged imprudent management. The Seventh Circuit explained that, while all class definitions “allude to the merits,” they are nevertheless only “a tool of case management,” noting that “a decision on a class definition should not, in principle, influence the merits of the case.”

AARP’s friend-of-the-court brief was filed by AARP Foundation Litigation attorneys, and focused on three areas. First, the brief included data measuring the amount of money currently held in 401(k) plans, as well as its importance to individuals’ retirement income. The second area suggested to the court that it should adopt an interpretation of its past decisions that takes a balanced approach to class certification requirements so that participants can bring ERISA actions to vindicate their rights. Third, the brief discussed the Department of Labor’s lack of resources to oversee the $3.5 trillion in 401(k) plan assets.

What’s At Stake

Class actions are an important way to change corporate wide practices in a single procedure. For people whose individual claims may be relatively small – but which may aggregate to massive ill-gotten gains – it can often be the only way to vindicate rights. Class actions are important for vindicating the rights of older people when litigating their rights under ERISA because they may be the only way to justify the time and expense and attract the expertise needed to prove the often complicated claims that are brought.

Case Status

Abbott v. Lockheed Corp. was decided by the U.S. Court of Appeals for the Seventh Circuit.