Federal law requires that companies operate their retirement plans solely to benefit their workers, but a lawsuit filed yesterday accuses First Union Corp., owner of the nation's sixth-largest bank, of operating its 401(k) plan to earn "monopolistic profits" at the expense of its workers.
The suit contends that First Union, based in Charlotte, N.C., has charged higher fees to its workers than it has to those of companies whose much smaller 401(k) plans it manages.
First Union's 401(k) plan "fees and expenses are routinely hidden from participants, and in some cases, are affirmatively misrepresented" as being waived or discounted, according to the lawsuit, filed by 18 former employees in U.S. District Court in Richmond, Va.
The suit quotes internal memorandums that it says indicate an active campaign to hunt for ways to extract the maximum possible fees from the First Union 401(k) plan.
And, the suit says, when First Union wanted to move into the complicated business of keeping 401(k) records, it experimented using its 401(k) plan and then charged these costs to its workers.
First Union, vowing to defend itself vigorously, said employees have "a broad range of investment options which are prudently and appropriately selected" in a plan run for their benefit.
The lawsuit, which seeks class action status, alleges that First Union's 71,000 current and former employees have suffered $100 million in damages. It seeks triple that amount, however, contending that First Union has operated as a racketeering enterprise and in violation of antitrust laws.
The suit also alleges that First Union Chief Executive Officer Edward E. Crutchfield Jr. and President John Georgius knowingly allow and encourage conduct that benefits First Union at the expense of its workers and have made sure that no one will "watchdog with independence and knowledge" the 401(k) plan.
The lead plaintiff in the suit, Sue Franklin of Danville, Va., said that when First Union sold the bank branch where she works, it kept her 401(k) plan and did so in a way that would force her to cash out and pay taxes now if she wants her money back before she turns 59 in five years.
Eli Gottesdiener of Sprenger & Lang in Washington, one of the lawyers who filed the suit, said he was contacted by workers at many other banks and mutual funds who said their 401(k) savings suffered because their employers "are engaged in similar practices to boost their fee income."