ERISA Litigations Claiming Misuse of 401(k) Forfeitures on the Rise

Shub & Johns investigates and explores a burgeoning area of consumer employment law after a stream of lawsuits filed against companies like Clorox, Qualcomm, Intuit, HP and others allege that companies and 401(k) plan administrators allegedly misused 401(k) forfeitures by reducing employer contributions to 401(k) plans rather than reducing fees and costs for the employees. These companies are suspected of breaching fiduciary duties under the Employee Retirement Income Security Act (“ERISA”) by failing to properly use funds allocated to 401(k) plans.

A recent decision in the Northern District of California denied Intuit’s motion to dismiss allegations that the company misused 401(k) plan forfeitures. The case is based on the allegations that Intuit Inc., breached ERISA’s fiduciary duties of prudence and loyalty because it allocated unvested employer-side contributions towards new employees’ 401(k) matches rather than lowering fees administrative fees for all plans. This decision comes just three months after a Judge in the Southern District of California denied  Qualcomm, Inc.’s motion to dismiss similar allegations challenging how the company spent 401(k) forfeitures.

While claims of breaching ERISA’s fiduciary duties are not new to employers, many of these cases did not involve 401(k) plans, creating a novel path of litigation in light of these recent decisions in the Intuit and Qualcomm cases. The California Court’s decision, however, seems to conclude that once funds are allocated towards the plan, they become plan assets and therefore should spent on current 401(k) plans, such as paying plan benefits, and reducing fees or paying off any plan expenses.

While some plan sponsors are seemingly working to amend 401(k) plans to eliminate the discretion of how forfeiture funds are allocated within plans, other companies like Intuit, HP, and Clorox continue to fight challenges that their allocation of forfeiture funds to reduce plan sponsor contributions or other external uses do not breach its fiduciary duty and therefore are not covered by ERISA.

Do you believe your employer has misused forfeitures, potentially violating its fiduciary duties? Let us know! Fill out the attached form and join the Shub & Johns investigation today!