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While another major health insurance company, Kaiser Foundation Health Plan, saw its 401(k) “forfeited funds” lawsuit dismissed earlier this month, Cigna was sued last week for similar fiduciary violations. The suit alleges Cigna’s 401(k) plan violated its fiduciary duties under the Employee Retirement Income Security Act for using forfeited funds to reduce employer contributions to the plan, while courts seems split on these lawsuits.
In Reven et al. v. The Cigna Group 401(k) Plan Retirement Plan Committee, filed last week in the U.S. District Court for the Eastern District of Pennsylvania, former employees accused Cigna of allocating forfeited 401(k) funds to reduce employer contributions to the plan instead of using the funds to reduce or eliminate the amounts charged to plan participants for administrative costs. As a result, the cost participants millions of dollars in returns.
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According to the IRS, 401(k) forfeited funds from departing employees who are not fully vested in the plan can be used for any of three permitted purposes: to pay plan expenses, to reduce future employer contributions or to make an additional allocation to participants.
In this latest suit, employees also alleged that Cigna fiduciaries breached their duty by selecting and maintaining a certain stable value investment with “significantly lower rates of return” when compared with similar stable value funds with higher crediting rates, which is the guaranteed rate of return for the investment fund.
Over the last year, there have been a flurry 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. Last week, Intuit agreed to a settlement in its lawsuit that alleged the firm reallocated forfeited funds to the "detriment of the plan and its participants," however, the judge in this case found that using forfeited funds to reduce contributions is not a fiduciary breach.
Last month, AT&T was sued for using forfeited plan funds from departed employees to pay administrative expenses.
Related: Kaiser Foundation Health Plan’s 401(k) ‘forfeited funds’ lawsuit is dismissed
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.
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.”
Kaiser 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.
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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.
