As discussed in a prior post, a wave of ERISA lawsuits has challenged how employers use forfeited 401(k) plan assets, with plaintiffs arguing that applying forfeitures to offset employer contributions (rather than reallocating them to participants) violates a plan sponsor’s fiduciary duties. Employers and regulators argue that plan documents typically permit such use and that decisions over forfeitures fall outside ERISA’s fiduciary framework, as such decisions are settlor in nature.
Against that backdrop, the Department of Labor (DOL) recently filed its fourth amicus brief supporting employers in 401(k) forfeiture disputes. In its brief, the DOL warned that a pro-plaintiff ruling could discourage employers from offering matching contributions or retirement plans at all.
The DOL filed its amicus brief on January 30 in Luciano Barragan v. Honeywell International Inc. et al., now pending in the 3rd Circuit. In its brief, the DOL argued that employers could view litigation challenging the use of forfeitures that is permitted under the regulations as an impediment to providing retirement benefits. The DOL further argued employers may not offer a retirement plan at all if plaintiffs were to win, as employers “. . .may eventually decide that the press of ever-increasing, cynical, lawyer-fabricated headaches like this case constitute a real impediment to the flexibility they need to provide their employees with retirement plans.”
The DOL has also recently filed four other amicus briefs supporting employers in forfeiture cases. In each of these briefs, the DOL consistently asserts that allocation of forfeitures under plan terms is a fiduciary act while decisions on how to use forfeitures are settlor functions and therefore not fiduciary breaches under ERISA.
The DOL’s active involvement in these cases is good news for plan sponsors. These types of suits, which challenge acts permitted under current law, are designed simply to force a quick “nuisance” settlement. It is the hope that the DOL’s continued support and legal involvement will curb these suits quickly.
If you have any questions about your plan’s forfeiture policy or benefits in general, please contact any of Bricker Graydon Wyatt’s employee benefits team.
