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Another company has prevailed in a lawsuit alleging an ERISA fiduciary breach in its retirement plan. Kaiser Foundation Health Plan (KFHP) got sued for using forfeited 401(k) plan funds from departing employees to pay administrative expenses, however, the company scored a dismissal on its lawsuit over how it handled forfeited plan money. However, workers can revise their complaint and try again, according to a federal court ruling in Los Angeles.
The class action lawsuit was filed by employee Stacey M. Madrigal in 2024, Stacey M. Madrigal v. Kaiser Foundation Health Plan, Inc. The suit claimed a fiduciary breach concerning the use of plan forfeitures to offset employer contributions, alleging violations of ERISA.
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However, the plaintiff did not allege that she failed to receive a benefit that she was contractually owed, said U.S. District Judge Monica Ramirez Almadani. As a result, “plaintiff does not allege that any of the forfeited assets at issue ever left the plan. Plaintiff's failure to allege that any assets left the plan is sufficient to foreclose her claim” for an ERISA violation.
However, these 401(k) forfeiture lawsuits challenging the use of retirement plan funds keep coming. 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.
In 2024, Bank of America was sued by 401(k) plan participants over misuse of forfeited funds and Nordstrom was hit with an ERISA lawsuit over misuse of forfeited funds, as well as excessive 401(k) fees. Wells Fargo was also sued by participants over misuse of 401(k) forfeited funds. These cases are still pending, while similar 401(k) forfeiture suits filed against Clorox, Thermo Fisher and Honeywell were dismissed at the end of 2024.
Related: Charter Communications’ workers sue over misuse of 401(k) forfeited funds, in emerging trend
In the Kaiser case, the plaintiff alleged that KFHP was a fiduciary, however, the judge noted that while Kaiser had “some control over the administration of the Plan, KFHP’s status as an administrator is not enough to support Plaintiff’s claims.” And thus, she concluded, “because Plaintiff has not plausibly alleged that KFHP acted as a fiduciary of the Plan under ERISA, the Court agrees with Defendants that Plaintiff has not plausibly alleged that KFHP caused the injury alleged in this action.”
Judge Almadani did, however, provide the plaintiff an opportunity for “correcting the deficiencies identified herein” within 21 days.
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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.
