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Recent Developments in 401(k) Forfeiture Cases: Key Updates for Plan Sponsors


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We have two significant updates in the arena of 401(k) forfeiture cases that could have far-reaching implications for employers and plan sponsors. These recent legal decisions underscore the need for vigilance and proactive management of plan documents and forfeiture practices.


Qualcomm Ordered to Defend 401(k) Forfeitures


In a recent decision out of California, Qualcomm has been ordered to defend its 401(k) forfeiture practices. This case marks the first substantial ruling in a series of new ERISA cases targeting how large companies handle forfeitures in their 401(k) plans. Qualcomm is accused of using forfeited 401(k) assets to reduce its own contribution expenses instead of using these funds to benefit plan participants by lowering their administrative expenses. The federal judge's decision to allow the case to proceed past a motion to dismiss is particularly noteworthy. If a case is not dismissed on a motion to dismiss, further litigation can become quite expensive (which can incentivize the parties to settle). Note - motions to dismiss are still pending in other similar forfeiture cases.


Tetra Tech Forfeiture Fiduciary Breach Suit Sent to Arbitration


In a different case involving Tetra Tech Inc., another 401(k) forfeiture case out of California was sent to arbitration. Like the Qualcomm case, Tetra Tech is alleged to have improperly used forfeitures to reduce its own contribution costs, thereby harming the plan and its participants. The federal judge ruled that the broad arbitration provisions in Tetra Tech's plan document required the dispute to be resolved through arbitration rather than litigation. Whether a plan participant can be forced to arbitrate an ERISA claim is also a hotly contested topic for another day.


Implications for Plan Sponsors


These cases highlight the critical need for plan sponsors to review both their plan documents and their practices with respect to the use of plan forfeitures. Some pre-approved plan documents include language that gives discretion over the use of forfeitures which cannot be altered without risking loss of reliance on the pre-approved plan’s favorable IRS opinion letter, while other pre-approved plan documents offer more flexibility. Ensuring that a plan's language aligns with the plan sponsor’s intent and practices will be helpful in mitigating the risks posed by this new line of cases.


Stay tuned for more updates as these cases develop. It's a pivotal time for 401(k) plan management and staying informed is key to navigating these complex issues.


Request a Consultation


To discuss how these developments might affect your plan and to review your plan documents, request a consultation with our counsel.


 

Boutwell Fay LLP

For over 20 years, the attorneys and other professionals at Boutwell Fay have been successfully solving the complex legal puzzles in the areas of employee benefits and ERISA. We have a federal practice in all 50 states.


We are a nationally recognized ERISA law firm with an unquenchable thirst to continue to learn, share, and deeply care for clients.


 

Sources


Wille, Jacklyn. "Qualcomm Is First Employer Ordered to Defend 401(k) Forfeitures." Bloomberg Law, May 24, 2024. Bloomberg Law.


Adams, Nevin E. "401(k) Forfeiture Fiduciary Breach Suit Sent to Arbitration." National Association of Plan Advisors, May 22, 2024. NAPA Net.

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