Recent legal developments have seen a series of class action lawsuits challenging how employers utilize forfeited funds within 401(k) plans. These cases primarily focus on whether using forfeitures to offset future employer contributions violates the Employee Retirement Income Security Act (ERISA). Courts have increasingly ruled in favor of employers, affirming the legality of this practice.
Forfeitures occur when employees leave a company before becoming fully vested in employer contributions to their 401(k) plans. Traditionally, these unvested funds have been used to reduce future employer contributions, a practice permitted under IRS regulations. However, plaintiffs in recent lawsuits argue that this approach breaches ERISA’s fiduciary duties by prioritizing employer interests over those of plan participants.
In a notable case, a California federal judge dismissed a lawsuit against JPMorgan Chase, ruling that the bank’s use of forfeited funds to offset its contributions was permissible under the explicit terms of its 401(k) savings plan. This decision aligns with other federal court rulings rejecting similar challenges to employer use of forfeited funds under ERISA guidelines. ([benefitspro.com](https://www.benefitspro.com/2025/06/17/jpmorgan-gets-401k-case-dismissed-as-courts-reject-more-forfeiture-lawsuits/?utm_source=openai))
Similarly, a federal judge in Minneapolis dismissed a proposed class action lawsuit against Wells Fargo, determining that the plaintiff lacked standing because the plan did not authorize the use of forfeited funds to pay optional services and operating expenses. ([benefitspro.com](https://www.benefitspro.com/2025/06/25/wells-fargos-401k-forfeiture-suit-gets-dismissed-aligning-with-jp-morgans-dismissal/?utm_source=openai))
These rulings underscore the importance of clear plan documentation. Employers are advised to ensure that their plan documents explicitly outline the permissible uses of forfeitures, aligning with IRS regulations and ERISA requirements. Establishing a written policy on the use of forfeitures can provide a clear framework for managing these funds, thereby mitigating legal risks. ([mossadams.com](https://www.mossadams.com/articles/2025/04/mitigate-risk-with-plan-forfeiture-policy?utm_source=openai))
While some courts have allowed claims to proceed, the prevailing trend favors employers, provided their actions are consistent with plan terms and regulatory guidelines. This legal landscape highlights the necessity for plan sponsors to regularly review and, if necessary, amend their plan documents to ensure compliance and protect against potential litigation.
Recent legal developments have seen a series of class action lawsuits challenging how employers utilize forfeited funds within 401(k) plans. These cases primarily focus on whether using forfeitures to offset future employer contributions violates the Employee Retirement Income Security Act (ERISA). Courts have increasingly ruled in favor of employers, affirming the legality of this practice.
Forfeitures occur when employees leave a company before becoming fully vested in employer contributions to their 401(k) plans. Traditionally, these unvested funds have been used to reduce future employer contributions, a practice permitted under IRS regulations. However, plaintiffs in recent lawsuits argue that this approach breaches ERISA’s fiduciary duties by prioritizing employer interests over those of plan participants.
In a notable case, a California federal judge dismissed a lawsuit against JPMorgan Chase, ruling that the bank’s use of forfeited funds to offset its contributions was permissible under the explicit terms of its 401(k) savings plan. This decision aligns with other federal court rulings rejecting similar challenges to employer use of forfeited funds under ERISA guidelines. ([benefitspro.com](https://www.benefitspro.com/2025/06/17/jpmorgan-gets-401k-case-dismissed-as-courts-reject-more-forfeiture-lawsuits/?utm_source=openai))
Similarly, a federal judge in Minneapolis dismissed a proposed class action lawsuit against Wells Fargo, determining that the plaintiff lacked standing because the plan did not authorize the use of forfeited funds to pay optional services and operating expenses. ([benefitspro.com](https://www.benefitspro.com/2025/06/25/wells-fargos-401k-forfeiture-suit-gets-dismissed-aligning-with-jp-morgans-dismissal/?utm_source=openai))
These rulings underscore the importance of clear plan documentation. Employers are advised to ensure that their plan documents explicitly outline the permissible uses of forfeitures, aligning with IRS regulations and ERISA requirements. Establishing a written policy on the use of forfeitures can provide a clear framework for managing these funds, thereby mitigating legal risks. ([mossadams.com](https://www.mossadams.com/articles/2025/04/mitigate-risk-with-plan-forfeiture-policy?utm_source=openai))
While some courts have allowed claims to proceed, the prevailing trend favors employers, provided their actions are consistent with plan terms and regulatory guidelines. This legal landscape highlights the necessity for plan sponsors to regularly review and, if necessary, amend their plan documents to ensure compliance and protect against potential litigation.