UnitedHealth's headquarters in Minnetonka, Minnesota. Photo: Mike Bradley/Bloomberg
This month alone, UnitedHealth has faced 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 late last year, was sued earlier this month by investors alleging misleading forecasts following Thompson’s death. Then UnitedHealth Group CEO Andrew Witty resigned on May 13 for “personal reasons.” On May 15, the company’s stock plummeted following a Wall Street Journal report that the insurer was under criminal investigation by the Justice Department for possible Medicare fraud, even though UnitedHealth released a statement calling the WSJ’s reporting “deeply irresponsible.”
Now the company is facing another lawsuit, Kotalik et al. v. UnitedHealth Group Inc. et al., filed by current and former employees on behalf of its 267,000 401(k) plan participants. The suit, which accuses UnitedHealth Group of breaching its fiduciary duties under the Employee Retirement Income Security Act (ERISA), was filed April 28 in the District Court of Minnesota. The plaintiffs include Theresa M. Kotalik, who remains employed with UnitedHealth, and three former employees, including Joseph Clements, who worked at the company until 2020.
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Forfeitures are portions of an employee’s retirement account balance that are returned to the retirement plan when the employee leaves the company before becoming fully vested in the plan. Similar to 401(k) lawsuits filed this month against Cigna and Kaiser Foundation Health Plan, UnitedHealth’s lawsuit alleges that the company used forfeited funds to offset its own plan contributions, rather than using them to pay administrative costs for the plan, in violation of ERISA. Since 2019, according to the complaint, UnitedHealth has reduced its employer contributions by more than $19 million by using forfeited funds. When compounded, the complaint estimates that participants in the UnitedHealth 401(k) Savings Plan, which has more than $22 billion in assets, lost $25.6 million. Using the forfeitures to reduce its contributions “benefited” UnitedHealth by lowering its costs, but “it harmed the plan, along with its participants and beneficiaries, by reducing the amount of assets the plan otherwise would have received,” according to the lawsuit.
Over the past year, there have been a rash of retirement plan forfeiture lawsuits alleging that a company used assets forfeited by workers for its own financial gain. This recent spate of forfeiture suits began with a U.S. Department of Labor (DOL) lawsuit against a tech company, which challenged how the plan sponsor used plan forfeitures. The case was settled in 2023; however, the plan terms required using forfeitures to lower plan expenses before using them to reduce employer contributions, according to the DOL’s complaint.
“If these [forfeiture] cases are successful,” writes Fred Barstein, CEO, The Retirement Adviser University, “it could change the way most defined plans are run. Initially thought of as a nuisance, plan sponsors and defense counsel are starting to take these cases seriously, as heavyweights like Jerry Schlichter [founder of Schlichter Bogard, a pioneer in legal action against 401(k) and 403(b) plan sponsors, on behalf of retirees and savers] are betting they will be successful.”
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From: BenefitsPRO
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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.
