Take a memo: Let's not kill all the lawyers just yet.

They are the only defense that workers have against corporate executives who would rather count their stock options than pay attention to workers' 401(k) plans.

Since those plans are what most workers use for retirement saving, having low plan expenses is important. A difference of one percent in annual expenses can be the difference between a secure retirement and cat food.

A new wave of class-action lawsuits started last month. That's when Schlichter, Bogard & Denton, a St. Louis law firm, filed a suit against defense contractor Northrop and Grumman. A copy of the complaint, which runs 45 pages, names the corporation, its savings plan administrative committee, its investment committee, and 16 individuals for "breach of fiduciary duty." The same firm has filed suit against seven other companies: Bechtel, Caterpillar, Exelon, General Dynamics, International Paper, Lockheed Martin, and United Technologies.

More suits may follow.

The common thread: The plan sponsor is accused of failing to fulfill its fiduciary duty to make certain the 401(k) plan operates with appropriate expenses.

"The most certain means of increasing the return on employees' 401(k) savings is to reduce the fees and expenses employees pay from their 401(k) accounts. Unlike generalized market fluctuations, employers can control these fees and expenses. Federal law requires them to do so," the suit against Northrop says.

The suit also asserts that Northrop Grumman failed to act appropriately to know about, and reduce, fees for its plan investment options and for the expenses associated with the way Northrop Grumman shares were treated as a plan option. Both worked to unreasonably reduce the net return to employees, the suit alleges.

This is not about small change. According to its most recent SEC filing, the Northrop Grumman plans have more than $11 billion in assets spread over 10 investment options plus company stock. Northrop matches the first 2 percent of employee contributions 100 percent, the next 2 percent is matched at 50 percent, and the next 2 percent is matched at 25 percent. Altogether, the employer match may total 4 percent of payroll.

Employees can choose between a U.S. equity fund, a U.S. fixed-income fund, a stable value fund, a balanced fund, an international equity fund, a small-cap fund, an equity index fund, a high-yield bond fund, an international bond fund, an emerging markets fund, and a "Northrop Grumman fund" for company stock. Employees can also choose a Schwab brokerage window account.

While the form 11-K discloses all this, it says not a word about the expenses of the plan options.

The most interesting part of the suit is the accusation that the Northrop Grumman plan is filled with "shadow index funds" that are collecting the much higher fees of managed funds. Northrop workers, in other words, are paying for something--- active management--- but they are not getting it.

And that, the suit asserts, is where the company and its executives have breached their fiduciary duty.

Shadow index funds--- sometimes called "closet index funds"--- are funds that talk about active portfolio management but actually practice near-indexing, so their returns won't fall far from their benchmark. Whether a fund is a shadow index fund is measured by a statistic called the R-squared, which measures how much of a fund's performance can be explained by an index. When the R-squared is 95 or higher, signifying that 95 percent of its performance can be attributed to an index, a fund is considered a shadow index fund.

Among well-known retail mutual funds, for instance, Fidelity Trend fund and Dreyfus fund both have R-squares of 98 percent. But while it is possible to manage an index fund for expenses as low as 10 basis points, Fidelity Trend has expenses of 83 basis points, and Dreyfus has expenses of 74 basis points, according to Morningstar.

And here's the rub: According to the lawsuit, every single one of the 9 fund offerings that claim active management have scored as shadow index funds over the last six years. As a consequence, corporate management may have been paying two or three times as much as their fiduciary duty would dictate.

On the web:

Sunday, June 12, 2005: Don Trone and Fiduciary Responsibility Tuesday, June 14, 2005: Fiduciary Analytics and Your 401(k) Plan Sunday, March 5, 2006: Should You Have Lottery Tickets in Your 401(k) (Calculator)