Plan participant Cory Curtis alleges that Amazon engaged in “self-dealing” to offset the company’s own contributions, rather than reducing administrative fees for more than 20,000 participants.

“The Plan document gives the Plan Fiduciaries discretion to use Plan assets that have been forfeited by Plan participants for one of three purposes: (i) reduce future matching contributions; (ii) pay Plan administrative expenses; or (iii) restore forfeited accounts,” according to the lawsuit.

Under the plan, “participants are immediately vested in their own contributions, as well as any actual earnings thereon and 100% vested in Company matching contributions and any actual earnings on such amounts after three years of service,” according to the suit.
Employees who leave Amazon before becoming fully vested forfeit their unvested funds. As a result, between 2018 and 2023, approximately $349 million in forfeited matching contributions accumulated in the plan, according to the lawsuit.

Amazon’s 401(k) plan has more than $17 billion in assets and more than 1.3 million participants, according to its most recent Form 5500 filing in 2022. Amazon saved millions of dollars in contribution expenses by using the forfeited funds toward future employer contributions, alleges the lawsuit.

Amazon continued to use forfeited funds to offset its company contributions “instead of allocating forfeitures to pay the plan’s administrative expenses (e.g., recordkeeping fees, investment management fees and transaction fees) or allocating the forfeitures back to eligible plan participants,” according to the lawsuit.

Related: Siemens is latest firm sued over misuse of 401(k) plan forfeiture funds

The IRS proposed regulations in 2023 providing guidance as to when forfeitures may be used: 1) to pay plan expenses; 2) to reduce employer contributions; or 3) to make an additional allocation to participants. Often, the forfeited employer contributions go into a pooled account in the plan called the "forfeiture account."