CIGNA headquarters
While another major health insurance company, Kaiser Foundation Health Plan (KFHP), saw its 401(k) “forfeited funds” lawsuit dismissed earlier this month, Cigna faces a suit claiming similar fiduciary violations.
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 accuse 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. The suit alleges that this allocation violated the plan’s fiduciary duties under the Employee Retirement Income Security Act (ERISA) and cost participants millions of dollars in returns.
Recommended For You
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 allege 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 past year, there have been a flurry of plan forfeiture lawsuits, which allege that a company used assets forfeited by workers for its own financial gain. This spate of suits began with a Department of Labor (DOL) lawsuit against a tech company, which challenged how the plan sponsor used plan forfeitures. The plan’s terms required using forfeitures to lower plan expenses before using them to reduce employer contributions, according to the DOL’s complaint. The case was settled in 2023.
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 both misuse of forfeited funds and 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 a lawsuit that alleged the company reallocated forfeited funds to the “detriment of the plan and its participants”; however, the judge in that 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.
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, but the judge noted that although 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. It is worth noting, however, that workers can revise their complaint and try again, according to a federal court ruling in Los Angeles.
————————————————————
From: BenefitsPRO
© 2025 ALM Global, LLC, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.
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.
