The investment bank is accused of acting in its own self-interest by using forfeited funds to reduce its contributions, as opposed to reallocating the funds to pay plan expenses. UBS fiduciaries breached their Employee Retirement Income Security Act (ERISA) duties and should make good on “plan losses” resulting from such alleged breaches, according to the suit. Since 2020, “UBS has had sufficient cash and equivalents on hand to satisfy its contribution obligations to the plan. Nevertheless, throughout that period, defendants consistently decided to allocate forfeitures solely in their own self-interest and failed to consider the interests of the plan and its participants,” according to the suit.

The onslaught of lawsuits began with a Department of Labor (DOL) lawsuit against a tech company, challenging how the plan sponsor used plan forfeitures. The case was settled in 2023. A key difference from many of the more recent suits is that plan terms for the tech company’s 401(k) required using forfeitures to lower plan expenses before using them to reduce employer contributions, according to the DOL’s complaint.

Here are some of the plan forfeiture lawsuits that were filed in 2024:

• Siemens, the global technology and manufacturing company, was accused of misuse of its forfeited retirement funds in its $8.9 billion 401(k) plan, in a class-action lawsuit.
  
• Bank of America was sued by 401(k) plan participants, who claimed the company “wrongfully and consistently used forfeited non-invested plan assets for its own benefit, to reduce future employer contributions, rather than for the benefit of plan participants," according to the lawsuit.
  
• Wells Fargo was sued for violating ERISA and “wrongfully and consistently” misusing $2,020,000 in forfeited 401(k) plan assets for the company’s own benefit.

Last week, Intuit agreed to a settlement in 401(k) participants’ lawsuit alleging that the firm reallocated forfeited funds to the “detriment of the plan and its participants.” However, the judge in the case found that using forfeited funds to reduce contributions is not a fiduciary breach. That follows several new 401(k) forfeited funds lawsuits filed last month involving healthcare firms. Kaiser Foundation Health Plan’s 401(k) forfeited funds lawsuit was dismissed, but Cigna employees have filed a class-action 401(k) misuse of forfeited funds lawsuit against their employer, and UnitedHealth was hit with two of these lawsuits.

The spate of forfeiture suits alleging the misuse of “defined-contribution plan forfeitures—the nonvested portion of a former employee’s account balance—to offset employer contributions” will continue throughout 2025, said Gerald L. Maatman, Jr., of Duane Morris LLP. What are some best practices for employers to avoid a lawsuit? “If any forfeitures remain, those must be used to pay administrative expenses,” recommends Maatman. Also, be transparent in “communications with participants on the use of forfeitures—including clearly communicating the forfeiture process and how forfeitures are to be used—through the plan document, summary plan description, and other plan communications.”

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From: BenefitsPRO