November 9, 2009 ( – Heavy equipment manufacturer Caterpillar Inc. has agreed to a $16.5-million settlement of an excessive fee lawsuit in federal court in Illinois.

A company newsletter said the September 2006 suit leveled the fiduciary breach charges against Caterpillar regarding its four 401(k) plans for workers and retirees.

According to the announcement, the net proceeds of the settlement will be allocated to participant accounts and former participants based generally upon the number of years a participant maintained an account balance in one or more of the plans.

This will happen after court-approved attorney’s fees and expenses of settlement administration have been deducted. Distributions would begin after U.S. District Judge Joe Billy McDade of the U.S. District Court for the Central District of Illinois grants final approval of the settlement, and all appeals have been pursued.

Even though one of the breach claims had to do with the actions of Caterpillar Investment Management Ltd. (CIML), formerly a Caterpillar subsidiary, the company said CIML was sold in 2006 before the suit was filed.  As a result, in May 2006, the Preferred Funds, advised by CIML, were replaced with other investment options, including separate accounts.

The suit also alleged Caterpillar kept too much cash in the company stock fund in the 401(k) plans.

Caterpillar contended in its statement that it had complied with the Employee Retirement Income Security Act (ERISA) and that it only agreed to the settlement because it thought the move would be in the best interests of the company and its shareholders.

The Web statement said the company will increase employee communication about 401(k) investment options and associated fees, and Evercore Trust Company will independently monitor the plans during a two-year settlement period.

Also, during the two-year period, Caterpillar will continue to limit its cash holdings in the company stock fund investment option, and will not include retail mutual funds as core investment options in the plans. The statement said that if service contracts come up for renewal, Caterpillar will undertake a request for proposal.

Fred Schneyer