UnitedHealth Group is now facing two 401(k) lawsuits from different plaintiffs and different attorneys, alleging that the beleaguered company misused employee forfeited funds for employer contributions into the retirement plan.
Last month, UnitedHealth was sued by employees in a 401(k) lawsuit, Kotalik et al. v. UnitedHealth Group Inc. et al, for allegedly using forfeited funds from departing employees to pay the employer contributions for plan participants, rather than using them to lower administrative expenses, violating the Employee Retirement Income Security Act. Now comes a second 401(k) lawsuit, filed on Wednesday, again alleging that forfeited funds from employees who left the company was used improperly to lower company costs.
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The latest suit, Holly Hendrickson v. UnitedHealth Group, was filed in federal court in Minnesota, alleging that UHG held on to forfeited funds from employees after they left the company and used it to improperly lower its own costs, the plaintiffs argue. Plan forfeitures are portions of an employee's retirement account balance that are returned to the plan when they leave the company before becoming fully vested in the retirement plan.
Between 2019 and 2023, UHG used $19 million in forfeited funds to reduce its own matching contributions, instead of using it to reduce administrative fees for the 401(k) accounts, breaching its fiduciary duty to plan participants, the plaintiff alleges.
A “prudent fiduciary … would have defrayed expenses to the Plan’s participants rather than defray costs to the employer,” says the lawsuit, claiming UHG caused “participants to incur millions in expenses that could otherwise have been covered in whole or in part by forfeited funds.” UHG’s 401(k) plan has $22 billion in assets with 267,000 participants, according to the Department of Labor.
In December, after three years of litigation, UnitedHealth Group agreed to pay $69 million to settle another 401(k) class action lawsuit, Snyder v. UnitedHealth, Group, et al., believed to be the largest ever of an ERISA case, stemming from poorly performing investment options.
This class action lawsuit was brought by Kim Snyder, who worked for UnitedHealth as a nurse, who alleged the company's 401(k) retirement plan invested in low-performing target-date funds; that CFO John Rex gave preferential priority to UnitedHealth's relationship with Wells Fargo, which managed the funds; and kept those interests even when they underperformed.
Related: UnitedHealth now facing a 401(k) class action suit, as employees sue for misuse of forfeited funds
Aside from these 401(k) lawsuits, UnitedHealth has been facing a vast amount of public scrutiny. The health insurer, which has already had a tough year in the public eye since the killing of UnitedHealthcare CEO Brian Thompson last December, was sued earlier this month by investors alleging misleading forecasts following Thompson’s death
On May 13, UHG CEO Andrew Witty resigned abruptly for “personal reasons.” Then it became public on May 15 that the company stock plummeted following a Wall Street Journal report that the insurer was under criminal investigation for possible Medicare fraud by the Justice Department, even though UnitedHealth released a statement, calling the WSJ’s reporting “deeply irresponsible.”
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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.
