HP World Headquarters.
In the last year, numerous class action 401(k) lawsuits have been filed by participants over misuse of forfeited assets from former employees, and tech giant HP Inc. has been one of them. However, a judge has, for the second time, dismissed the Employee Retirement Income Security Act lawsuit, stating that HP did not breach its fiduciary duties.
The lawsuit, Hutchins v. HP Inc. et al, challenged HP’s decision to use 401(k) “’forfeitures’ to reduce employer contributions rather than to pay administrative costs,” according to the suit. It was refiled last year after being dismissed.
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This time, Judge Beth Labson Freeman of the Northern District of California, rejected the idea that the practice of using forfeited funds violates ERISA, saying the plan participants’ legal theory ignores “decades of settled law” and incorrectly suggests that ERISA fiduciaries are required to resolve “every issue of interpretation in favor of plan beneficiaries,” according to the suit.
The lawsuit filed by employee Paul Hutchins, on behalf of HP employees, accuses HP of mishandling forfeitures – funds from employee accounts that are not fully vested when employees leave the company – to offset the employer’s own contributions to the plan. The judge gave Hutchins 30 days to amend the complaint.
There have been a rash of plan forfeiture lawsuits, which allege a company used assets forfeited by workers for its own financial gain. Earlier this month, Trader Joe’s workers sued over misuse of forfeited funds, as well as “needlessly high” 401(k) fees.
The recent spate of forfeiture suits began with a Department of Labor lawsuit against a tech company, which challenged how the plan sponsor used plan forfeitures. The case was settled in 2023, however, the plan terms required using forfeitures to lower plan expenses before using them to reduce employer contributions, according to the DOL's complaint.
Here are some of the lawsuits that were filed in 2024:
- Siemens, the global technology and manufacturing company, was accused of misuse of its forfeited retirement funds in its $8.9 billion 401(k) plan, in a class action lawsuit.
- Bank of America was sued by 401(k) plan participants “wrongfully and consistently used forfeited non-invested plan assets for its own benefit, to reduce future employer contributions, rather than for the benefit of Plan participants," according to the lawsuit.
- Wells Fargo was sued for violating ERISA and "wrongfully and consistently" misusing $2,020,000 in forfeited 401(k) plan assets for the company's own benefit instead of its participants.
Related: Trader Joe’s workers sue over ‘needlessly high’ 401(k) fees and misuse of forfeited funds
The HP lawsuit presented a novel question, Judge Freeman wrote in the order: “Whether and under what circumstances is a plan administrator’s decision to use ‘forfeited‘ employer contributions to a retirement plan to reduce employer contributions rather than to pay administrative costs a violation of the Employee Retirement Income Security Act?”
She further stated, “If given the option between using forfeited funds to pay administrative costs or to reduce employer contributions, a fiduciary is always required to choose to pay administrative costs. But the flaw in such a theory is that it is not limited to any particular circumstances that may be present in this case.”
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Lynn Cavanaugh
Lynn Varacalli Cavanaugh is Senior Editor, Retirement at BenefitsPRO. Prior, she was editor-in-chief of the What's New in Benefits & Compensation newsletter. She has worked for major firms in the employee benefits space, Vanguard and Willis Towers Watson, as well as top media companies, including Condé Nast and American Media.
