July 2024 ERISA Litigation Update: 

Given the continuing wave of ERISA litigation, this article has become a mainstay of The Speed Reader. A sample of recent cases is provided below. 

The most common type of ERISA case for approximately the past 18 years involves retirement plan participants’ allegations that plan fiduciaries caused participants to pay excessive recordkeeping and investment fees and included one or more poorly-performing investment options in the plan. Recent cases in this category include the following:

  • Kistler v. Stanley Black & Decker, Inc. (defendant’s motion to dismiss the case denied on July 3 by the U.S. District Court for the District of Connecticut)
  • McCauley v. The PNC Financial Services Group, Inc. (dismissed on June 21 by the U.S. District Court for the Western District of Pennsylvania)  
  • Mattson v. Milliman, Inc. (dismissed on June 17 by the U.S. District Court for the Western District of Washington)

Another type of recent ERISA case is as follows:

Hutchins v. HP, Inc. (dismissed on June 17 by the U.S. District Court for the Northern District of California):  Previous editions of The Speed Reader have discussed a recent barrage of cases involving plan forfeitures. The plaintiffs contend that plan fiduciaries breached their ERISA duties by using plan forfeitures to pay for employer matching contributions instead of using forfeitures to pay plan expenses for participants. Two courts have now issued rulings in these cases. In the first ruling, a court denied the defendants’ motion to dismiss the case. In the second ruling, which is this Hutchins case, the court granted the defendants’ motion to dismiss the case. 

The Hutchins court began its ruling by stating that the plaintiff “has opened with a swing for the fences—his Complaint takes the position that a failure to use forfeited contributions to pay administrative costs is always a violation of ERISA.” The court then cited the governing plan document section, under which the defendants have discretionary authority and control over how forfeited matching contributions are used. More specifically, the plan document provides that forfeitures can be used to “reduce employer contributions, to restore benefits previously forfeited, to pay Plan expenses, or for any other permitted use.” The court then ruled as follows:

  • The plaintiff attacks not the decision to include that plan language, but the defendants’ implementation of that decision. That is, the defendants exercised discretion and control over plan assets and thus made decisions about plan administration (a fiduciary function) rather than plan design (a settlor, non-fiduciary function). Accordingly, the plaintiff satisfies the threshold requirement of alleging that the defendants acted as fiduciaries when they determined how to allocate forfeitures.
  • ERISA requires fiduciaries to comply with a plan as written unless it is inconsistent with ERISA. Here, the litigants here agree that, in using forfeitures to reduce employer contributions, the defendants acted consistent with the above-quoted plan document language.
  • ERISA does not mandate what benefits an employer must provide under a plan.  Instead, ERISA “does no more than protect the benefits which are due to an employee under a plan.” 
  • The plaintiff is effectively arguing that the fiduciary duties of loyalty and prudence create a benefit: the payment of his administrative costs. The Plan does not provide any such benefit, though. In addition, ERISA’s “duty to act in accordance with a plan document does not . . . require a fiduciary to resolve every issue of interpretation in favor of plan beneficiaries.”
  • The IRS and Congress have long concluded that forfeitures in defined contribution plans can be reallocated to participants under a nondiscriminatory formula, used to reduce future employer contributions, or used to offset a plan’s administrative expenses.
  • The use of forfeitures to reduce employer contributions does not violate ERISA’s provisions generally forbidding plan assets from being diverted to the plan sponsor. That is because, in such cases, forfeitures do not leave the plan and are used to pay obligations to participants.