We have posted several times about the growing series of class action cases alleging breaches of fiduciary duty and prohibited transactions with respect to the handling of forfeitures within defined contribution retirement plans.
The trend continues in 2025 with a solid win for the defendants and a new entrant into the fray.
First Dismissal with Prejudice
In a first, a district court has now granted a motion to dismiss a case involving plan administrator discretion over allocation of forfeitures without leave to amend. See: Hutchens v. HP, Inc., DC ND CA, 2/5/2025.
In the Hutchens case, the plan document had helpful language granting complete discretion to the plan sponsor to decide the amount of plan expenses it would pay each year. The court distinguished between the “settlor” decision by the employer to pay or not pay expenses – as a non-fiduciary decision. The next logical step was that the plan administrator had a resulting obligation to carry out the settlor’s decision and follow the terms of the Plan. The court also held that there was no “transaction” that could be the basis of a prohibited transaction finding, because there was no risk of underfunding because of the employer’s actions.
New Law Firm Enters the Fray
We have also now seen the first case filed by the well-known fee litigation plaintiff’s law firm of Schlichter Bogard, LLC. That case has a slightly different twist in that the plaintiff’s allege that the plan document required the plan administrator to use forfeitures to pay plan expenses, but they did not do so. See: (O'Donnell et al. v. Charter Communications Inc. et al., case number 4:25-cv-00157, in the U.S. District Court for the Eastern District of Missouri). The United States Department of Labor has already won a case involving facts similar to those alleged.
What Employers Can Do
See the steps outlined in our prior post: https://www.boutwellfay.com/post/forfeitures-again-why-you-really-do-need-to-take-a-second-look-at-forfeiture-compliance-now.
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