FORT WORTH, Texas–American Airlines Credit Union here has found itself part of a court case over the performance of an investment fund that is part of a 401(k).
The credit union is not a defendant or plaintiff in the litigation.
At issue is a lawsuit filed in the U.S. District Court for the Northern District of Texas (Ortiz v. Am. Airlines) that alleges American Airlines failed to fulfill its obligations as a plan fiduciary by allowing more than $1 billion to be invested in the AA Credit Union Fund (which is managed by American Airlines Credit Union here). The plaintiffs had alleged that the credit union fund failed to outpace inflation.
The two parties had reached a settlement of $8.8 million, but the judge in the case ruled the agreement does not go far enough.
In the process of negotiating the settlement, the judge in the case noted that plaintiffs, through their counsel, estimate that the future monetary value to plan participants of the “structural relief” described above “is between $30,000,000 to $48,000,000 for the three-year [period] following the implementation of the Structural Relief, based on certain assumptions,” according to the National Association of Plan Advisors.
“Specifically, he noted that, if participants move half of the approximately $1 billion of their accounts currently invested in the American Airlines Credit Union Demand Deposit Option into the new stable value fund option, participants would earn an additional $10 million per year in investment return, and if participants move 80% of their accounts invested in the American Airlines Credit Union Demand Deposit Option, the increased investment return would equal $16 million per year, resulting in a range of value for the structural relief of $30 million-$48 million for the three-year period following implementation of the structural relief,” the National Association of Plan Advisors reported on its website.
The judge further noted that based on the information provided to the court, “if this action were to be pursued through litigation rather than by settlement, such an outcome would appear likely,” and that consequently, “the court does not now have information that would allow it conclude that there is a realistic chance that after a hearing the court would determine that the proposed settlement, which contemplates a payment by defendants of only $8.8 million to certain of the putative class members, should be approved as being fair, reasonable, and adequate to the members of the proposed classes,” NAPA reported.