International Paper has agreed to pay $30 million and make some major changes to its retirement plans to settle an excessive fees lawsuit brought by current and former plan participants.
The case, which was filed on Sept. 11, 2006, was one of the first such cases to be filed against a 401(k) plan by participants who claimed they paid $58 million in unreasonable recordkeeping and administration fees.
The lawsuit also asserted that International Paper forced employees to put money into company stock if they wanted to receive an employer matching contribution. Plan participants were prohibited from taking money out of the Company Stock Fund until they reached age 55 and they could only withdraw 20 percent per year after that. So, the Company Stock Fund held up to 57 percent of the plan’s assets, with more than one-third of participants holding over 90 percent of their account balances in company stock.
The suit alleged that at the same time the company was requiring employees to invest in IP stock, the company was withdrawing IP stock from its corporate-managed defined benefit plan because the company’s stock was expected to do poorly. The alleged damages were $2 billion.
The lawsuit also accused the company of switching out a low-cost Vanguard S&P 500 fund with an expensive, actively managed Large Cap Stock Fund, which underperformed the S&P 500 and the Russell 1000 Index.
As part of the settlement, IP said it would no longer prohibit employees from withdrawing their money from the Company Stock Fund.
The company also agreed that it would not profit from the plans and would competitively bid its plans’ recordkeeping services. It also will provide the plans with revenue earned from securities lending and would introduce a passively managed large cap index fund as part of the plans’ core investment lineup.