A group of First Union Corp. employees sued the company yesterday, accusing the giant bank of using its 401(k) retirement plan as a marketing device for its money-management services and charging the plan excessive fees.

The suit, filed in U.S. District Court in Richmond, seeks class-action status and asks for $300 million in damages on behalf of 100,000 First Union workers and retirees.

It alleges, in essence, that First Union placed its own corporate interests ahead of those of workers and retirees when managing the 401(k) plan, thus violating the 1974 Employee Retirement Income Security Act and other federal laws.

First Union, in a statement, said the company has administered the plan "for the benefit of participants."

"Our plan provides participants with a broad range of investment options, which are prudently and appropriately selected," the bank said. "First Union will vigorously defend this suit."

According to the complaint, the bank required its employees to invest only in mutual funds operated by a subsidiary of the bank. The performance of these funds was "mediocre" and the fees were high, but the presence of the large number of employees and the substantial amount of money they had invested were useful marketing tools for the company when it sought to sell its 401(k) management services to other firms, the suit said.

Because of this "self-dealing" relationship, alternative investments and fee waivers, often offered to outside clients, were not available to First Union workers, the suit said.

"Indeed, First Union treats total strangers--i.e., its third-party client 401(k) plans--better than it does its own employees," the suit said.

The plan has $3 billion in assets.

"This is a widespread practice of companies that have their own funds, offering nothing but their own funds to their own people but out in marketplace offering other" more attractive investments, said Eli Gottesdiener, of the D.C. law firm Sprenger & Lang, which is representing the First Union workers.

The suit is the second against First Union this year arising from its 401(k) plan. In May, a group of former employees of Signet Banking Corp., which was taken over by First Union, accused First Union of illegally shifting assets from Signet's 401(k) plan into its own mutual funds.

According to the latest complaint, First Union and its management subsidiaries:

Replaced mutual funds in the plan with others "not based on participants' needs" but so that the management firm could charge higher fees.

Gave the most direct responsibility for monitoring the management fund to an executive who had neither the knowledge nor the authority to do the job properly. In a deposition, this executive "did not even know the difference between the S&P 500 and the Fortune 500, and had no idea which one the plan's index fund tracked."

Used the 401(k) plan to try out services, such as record-keeping, they intended to sell to other clients. The suit says the strategy gave the management firm "the ability to experiment and learn daily 401(k) record-keeping on a plan whose account . . . it would never lose no matter what mistake it committed and no matter what excess costs it incurred for the plan."

Charged plan participants since 1993 $6.25 million in expenses "that they never should have had to pay . . . had the plan had an independent, competent fiduciary looking out for its interests."