Wal-Mart’s latest advertising slogan (Save money. Live better.) has stumbled upon a very embarrassing contradiction. Wal-Mart’s 401(k) retirement plan is a centerpiece of the company’s employee benefits plan. Every time the retailer opens a new store, it boasts about its 401(k) plan. But one Wal-Mart worker was not impressed — in fact he says the company’s 401(k) plan is a rip off. Jeremy Braden says that his employer, Wal-Mart, failed him by investing his 401(k) pension plan in expensive mutual funds, which also did not perform well. Braden, who works at the Wal-Mart in Ozark, Missouri, has filed a class action lawsuit in the U.S. District Court, Western District of Missouri, on the last day of March, charging that Wal-Mart violated federal Employee Retirement Income Security Act (ERISA), and cost employees $60,000,000 in unnecessary costs. “The failure of [Wal-Mart] to ensure that the fees and expenses charged to the plan are reasonable is particularly galling give that Wal-Mart has built its image in the marketplace around the concept of cutting costs and rolling back prices,” the lawsuit says. “The company has failed its own associates by not living up to its own slogans: ‘Always Low Prices’ and ‘Save Money, Live Better.'” Braden’s lawsuit alleges that Wal-Mart’s only plan options were retail class shares, which have higher fees than ‘institutional’ shares — which Wal-Mart could easily have bought given the huge amount on money in its 401(k)plan. Wal-Mart says its philosophy of “sharing its profits with full-time and part-time hourly associates is rare in the retailing industry. Sam Walton strongly believed in making all associates partners in the success of our business and that commitment is as strong as ever today,” said a Wal-Mart executive vice president. Historically, Wal-Mart has contributed 2% of an associate’s pay into a profit-sharing plan, and 2% into an associate’s 401(k) retirement plan. Associates are not required to contribute any of their own money to the plans in order to get the company contribution, Wal-Mart says. During FY 2007, Wal-Mart contributed $667 million to 815,629 hourly workers. But Braden’s complaint says the plan’s trustee, Merrill Lynch, got “kickback payment” from the Plan, despite the fact that Merrill Lynch provided no services to the Plan. The 401(k)’s failure to say money was a “further affront to the Wal-Mart credo,” the lawsuit says. “It was not Wal-Mart’s money that was wasted. Rather, it was the retirement savings of Wal-Mart’s hard-working, low-paid employees.” Under the ERISA law, workers are protected against retirement plans that make “imprudent” investment decisions. Plan trustees are required to carefully manage the retiree funds as part of their “fiduciary responsibility” to the employees. Braden will have to show that imprudent investment choices were made, and that Wal-Mart broke its fiduciary obligations under ERISA. Braden’s lawyers say that Wal-Mart’s poorly managed 401(k) cost its workers $60 million over a six year period. Another $20 million will be lost every additional year that the 401(k) plan continues without change. If Braden’s lawsuit is allowed to progress as a class action, it could cover as many as one million current or former employees who participated in, or benefited from the 401(k) plan since January 31st, 2002.
Wal-Mart says the average hourly wage for a regular, full-time worker in Missouri is currently $10.86. If that worker were able to put in 40 hours per week, the 2% of their eligible pay would come to $453 for their 401(k). To be eligible for the 401(k) plan, a worker has to be entering their 13th month of employment, and must have worked 1,000 hours during their previous year with the company. In 2007, Wal-Mart workers were allowed to contribute up to 25% of their pretax earnings into the 401(k). But at Missouri wages, it is not likely that many employees max out their 401(k) contributions. Wal-Mart says its employees can choose from 13 different 401(k) investment options. “For associates who did not make an election, their 401)(k) balance in the plan is placed in a balanced fund,” the company claims. Associates may change their investment options at any time.” According to Wal-Mart, the company contributed $890 million to profit sharing and 401(k) plans in 2007, $827 million in 2006, and $756 million in 2005. These figures do not tie in to the $667 million noted above for 2007. Braden’s lawsuit says that Wal-Mart failed to even tell is employees that there were cheaper options available to them. This lawsuit, if it is allowed to become a class action, threatens to become one more string of negative headlines about how Wal-Mart has short-changed the people who have made the Walton’s rich beyond belief.
