Judge: Company could be sued for breaking U.S. law

St. Louis (PAI) — Kickbacks. Conflicts of interest. Excessive brokers’ fees. Investment returns lagging behind the market. Concealed information.

Welcome to the wonderful world of Wal-Mart’s 401(k) plan — the latest potential instance of the retail mega-monster mistreating its workers, according to a recent federal court ruling.

All this misbehavior joins the other anti-worker actions of the world’s largest retailer: Its always-low wages, its forced and unpaid overtime, its always-high healthcare charges, its rampant sex discrimination on the job and even its attempt several years ago to get low-paid workers to make it beneficiary of their “dead peasant” life insurance. 

And, of course, Wal-Mart’s rabid — and often illegal — anti-unionism.

But in this case, Wal-Mart may pay in cold cash. 

That’s because 8th U.S. Circuit Court of Appeals Judge Diana E. Murphy wrote that Wal-Mart could face another class-action suit against the corporation and its pension plan trustees for breaking federal pension law.

The winner this time was worker Jeremy Braden, who began working for Wal-Mart in May 2002. 

Braden found all sorts of shenanigans in the company-run 401(k) plan after he started investing on Oct. 31, 2003. 

Braden backed the charges with evidence — enough so that Judge Murphy and her two colleagues on the St. Louis-based court reversed a lower court ruling for Wal-Mart and sent the case back down for trial. 

What Braden disclosed includes:

• Wal-Mart is the plan’s sponsor and administrator, but it hired Merrill Lynch as the trustee, “holding its assets in trust and providing various administrative services” to maintain workers’ accounts. 

Wal-Mart’s plan covered 1 million people and had almost $10 billion in assets by the end of 2007 — but it should have had more, Braden found. 

• Merrill Lynch used its position as trustee to skew the choices that workers had for their 401(k) investments. 

“Available options included 10 mutual funds, a common/collective trust, Wal-Mart common stock, and a stable value fund,” Murphy’s ruling said. 

Wal-Mart’s Retirement Plans Committee, also named in Braden’s suit, selected them.

But that committee “failed adequately to evaluate the investment options included in the plan.” 

As a result, Wal-Mart workers earned less from their 401(k)s — at least through March 2008, when Braden sued — than they would have otherwise.

• “The process by which the mutual funds were selected (for Wal-Mart workers’ investments) was tainted by (the Wal-Mart committee’s) failure to consider trustee Merrill Lynch’s interest in including funds that shared their fees” with Merrill Lynch, the ruling said. 

“The result of these failures is that some or all of the investment options charge excessive fees. He (Braden) estimates these fees unnecessarily cost the plan some $60 million over the past six years and will continue to waste approximately $20 million per year.”

• Large pension plans — such as Wal-Mart’s — typically buy mutual fund shares at “institutional” prices “significantly cheaper than the retail shares generally offered to individual investors,” the ruling said.

Merrill Lynch and the Wal-Mart plan trustees “only offered retail class shares to participants,” thus cutting potential gains, the judge wrote.

• “Seven of the 10 (mutual) funds” that Wal-Mart offers to its workers as pension plan investments “charge 12b-1 fees, which…benefit the fund companies but not” the workers, the ruling said.

“The relatively high fees charged by the funds cannot be justified by greater returns on investment since most of them underperformed lower-cost alternatives….In comparison to an investment in index funds, Braden estimates the higher fees and lower returns of (the Wal-Mart pension plan’s 10 mutual funds) cost the plan some $140 million by the end of 2007.” 

Braden said that hurt his 401(k), and Judge Murphy agreed.

• To top it off, Merrill Lynch took “kickbacks” — the ruling’s word, quoting Braden — from the 10 mutual funds offered to the Wal-Mart workers as part of their pension plan. 

The kickbacks came from money invested by Wal-Mart workers.

“Companies whose funds were included in the (pension) plan shared with Merrill Lynch portions of the fees they collected from participants’ investments,” the ruling said.

However, “This practice, sometimes called ‘revenue sharing,’ is used to cover a portion of the costs of services provided by an entity such as a trustee of a 401(k) plan, and is not uncommon in the industry,” Braden admitted.

Nevertheless, “The revenue sharing payments” by the mutual funds that Merrill Lynch included in the workers’ 401(k) choices “were not reasonable compensation for services rendered by Merrill Lynch, but rather were kickbacks paid by the mutual fund companies in exchange for inclusion of their funds in the plan,” the court’s ruling said.

And where were the pension plan trustees — those Wal-Mart executives who ran the company’s plan and who, according to federal law, must look out for their workers’ interests? 

In so many words, Judge Murphy ruled, they were looking the other way.