AUGUST 11, 2018: Charter Communications logo displayed on a modern smartphone
These 401(k) forfeiture lawsuits challenging the use of retirement plan funds keep coming. On Feb. 7, Charter Communications was sued over its $7.8 billion retirement plan by three former employees in a proposed class action lawsuit.
The telecommunications company’s 401(k) plan document explicitly required that plan forfeiture assets “were first required to be used to pay Plan administrative expenses,” according to the lawsuit, O’Donnell et al v. Charter Communications Inc. et al., and only earmarked the funds for employer matching contributions after all administrative expenses were paid.
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“In direct violation of these terms,” plan participants were charged more than $31 million in administrative expenses between 2020 and 2023—a period during which the company put more than $141 million in forfeitures toward its own expenses, according to the lawsuit. “Charter disloyally and imprudently benefitted itself by continuously prioritizing the use of Plan forfeiture assets to reduce its required employer matching contribution obligations rather than using those Plan assets to pay for administrative expenses charged to Plan participant accounts,” according to the suit.
In addition to these administration fees, Charter’s 102,013 plan participants were charged “Plan recordkeeping fees, trustee fees, fees for qualified domestic relations orders, legal fees, brokerage account fees, consultant fees, audit fees, mailing fees, and printing fees,” according to the suit.
Top law firm Schlichter Bogard, which has represented many plaintiffs in recent 401(k) excessive fee lawsuits, is representing Charter participant-plaintiffs and ex-employees Patrick O’Donnell, Wayne Saffold and Mark Papenfuss. Jerry Schlichter, founder of Schlichter Bogard, who is a pioneer in legal action against 401(k) and 403(b) plan sponsors on behalf of retirees and savers.
Over the last year, there have been a rash of plan forfeiture lawsuits, which allege a company used assets forfeited by workers for its own financial gain. This 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.
There have been some recent forfeiture lawsuit dismissals as well, including the one against tech giant HP Inc., which was dismissed for the second time last week, with the judge declaring that HP did not breach its fiduciary duties.
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.
Related: Trader Joe’s workers sue over ‘needlessly high’ 401(k) fees and misuse of forfeited funds
“If these [forfeiture] cases are successful,” writes Fred Barstein, CEO, The Retirement Adviser University, “it could change the way most defined plans are run. “Initially thought of as a nuisance, plan sponsors and defense counsel are starting to take these cases seriously, as heavyweights like Jerry Schlichter are betting they will be successful.”
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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.
