In the last two years, at least 50 class action 401(k) lawsuits have been filed by plan participants over misuse of forfeited assets from former employees, and tech giant HP Inc. has been one of them. Earlier this year, a judge, for the second time, dismissed the Employee Retirement Income Security Act (ERISA) lawsuit, stating that HP did not breach its fiduciary duties.
The lawsuit, Hutchins v. HP Inc. et al, challenged HP’s decision to use 401(k) “’forfeitures’ to reduce employer contributions rather than to pay administrative costs,” according to the suit. It was refiled last year after being dismissed.
The lawsuit was filed by employee Paul Hutchins, on behalf of HP employees, accuses HP of mishandling forfeitures – funds from employee accounts that are not fully vested when employees leave the company – to offset the employer’s own contributions to the plan.
In February, Judge Beth Labson Freeman of the Northern District of California, rejected the idea that the practice of using forfeited funds violates ERISA, saying the plan participants’ legal theory ignores “decades of settled law” and incorrectly suggests that ERISA fiduciaries are required to resolve “every issue of interpretation in favor of plan beneficiaries,” according to the suit.
Now, the plaintiffs, after two dismissed lawsuits, have filed an appeal, which is pending in the Court of Appeals for the Ninth Circuit – and a few similar cases, including Qualcomm and Mattel, have been put on pause until the HP appeal is resolved. District judges in California, Arizona, Virginia, Illinois, South Carolina, and Washington have ruled on 401(k) forfeiture disputes, but the issue has yet to be weighed by any federal circuit court.
Related: Tech giant HP gets 401(k) ‘misuse of forfeited funds’ lawsuit dismissed, again
However, now HP is gaining support from the Department of Labor. “The established understanding for several decades has been that defined contribution plans … may allocate forfeited employer contributions to pay benefits for remaining participants rather than using those funds to defray administrative expenses …,” wrote the DOL, in an amicus brief filed to the Court of Appeals for the Ninth Circuit, on behalf of HP.
“The Secretary has a substantial interest in fostering established standards of conduct for fiduciaries by clarifying the Secretary’s view that a fiduciary’s use of forfeited employer contributions in the manner alleged in this case, without more, would not violate ERISA.”
© Arc, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to TMSalesOperations@arc-network.com. For more information visit Asset & Logo Licensing.