Alex Smith

by Alex Smith

Over the past year, numerous employers and their 401(k) plan fiduciaries have faced lawsuits regarding how forfeited employer contributions to their 401(k) plan are utilized.  This wave of lawsuits began approximately a year ago when a plaintiff’s law firm filed putative class action lawsuits raising this novel claim against multiple large employers, including Intuit, Clorox, and Thermo Fisher Scientific in California federal courts.  Since then, this claim has been included in numerous 401(k) plan lawsuits even though none of these lawsuits have reached a final judgment on the merits and only four have had decisions on motions to dismiss.

These lawsuits allege that the employer and its 401(k) plan fiduciaries breached their fiduciary duties under the Employee Retirement Income Security Act of 1974, as amended (“ERISA”), by using forfeited employer contributions to the 401(k) plan to offset future employer contributions instead of using the forfeited amounts to offset 401(k) plan expenses that were charged to participant accounts.  The plaintiff’s counsel alleges that the employer and 401(k) plan fiduciaries are violating ERISA’s fiduciary requirements to make decisions for the benefit of plan participant because the employer benefits from a reduction in its future employer contributions at the expense of plan participants who have to pay for certain expenses that are charged to their 401(k) accounts. Read more >>

Alex Smith

by Alex Smith

Courts have been mixed regarding the enforceability of arbitration provisions in Employee Retirement Income Security Act (ERISA) retirement plans since the U.S. 9th Circuit Court of Appeals’ 2019 decision in Dorman v. Charles Schwab Corp. Some employers and plan sponsors have considered adding arbitration provisions based on Dorman and the proliferation of ERISA class action lawsuits. Following the decision from the 10th Circuit (whose rulings apply to all Colorado employers) in Harrison v. Envision Management Holding, Inc. Board, however, employers in the 10th Circuit may want to reconsider.

10th Circuit’s decision

In Harrison, the 10th Circuit rejected the enforcement of an employee stock ownership plan’s (ESOP) arbitration provision in a lawsuit filed by a plan participant alleging the ESOP’s fiduciaries overpaid for the employer’s stock, breached numerous ERISA fiduciary duties, and engaged in prohibited transactions.

The 10th Circuit’s ruling focused on the ESOP’s specific arbitration provision, which allowed participants to obtain only individual relief and therefore made it impossible for them to obtain the plan-wide relief under ERISA. As a result, the 10th Circuit concluded the participants couldn’t effectively vindicate their statutory rights under ERISA. Read more >>