In the past month, plaintiffs have filed two separate lawsuits, Dimou v. Thermo Fisher Scientific, Inc. and Rodriguez v. Intuit, Inc., accusing plan fiduciaries of violating the Employee Retirement Income Security Act of 1974 (ERISA) by leveraging plan forfeitures to offset future employer contributions. This recent flurry of lawsuits is targeted at a common practice in the 401(k) plan landscape, a practice hitherto presumed legal and unquestioned which has now come under legal scrutiny.
Both lawsuits are based on the ERISA provision that forbids a fiduciary from dealing with the assets of the plan in their own interest or in a manner that benefits a party in interest. Plaintiffs argue that by redirecting forfeiture funds to offset their future funding commitments, companies are misappropriating ERISA-protected assets to serve their own financial interests.
This use of forfeitures is a widespread practice among plan sponsors, hence the development of these cases could have industry-wide implications. Information about this litigation is crucially important for plan sponsors and service providers alike as these claims will undoubtedly be concerning to all 401(k) plan stakeholders.
The impending resolution of these cases might necessitate changes to forfeiture usage practices and may potentially result in amendments to ERISA regulations. Legal professionals working with 401(k) plans should keep abreast of these developments and prepare for potential shifts in legal expectations and standards in the realm of 401(k) plan administration.
For further details, you may find the full article on JD Supra, penned by lawyers from the Groom Law Group, Chartered.