Cigna headquarters. Credit: askarim/Shutterstock.com
Just weeks after Cigna was sued for Employee Retirement Income Security Act (ERISA) fiduciary violations for using forfeited funds to reduce employer contributions to its 401(k) plan, the health insurer was sued again by three former employees for similar violations in a lawsuit filed in U.S. District Court for the Eastern District of Pennsylvania this week.
Oddly enough, UnitedHealth was hit with two 401(k) lawsuits in the past few months alleging the same violation—that forfeited funds from departing employees were used improperly. The latest suit, Holly Hendrickson v. UnitedHealth Group, was filed in May, while Kotalik et al. v. UnitedHealth Group Inc. et al was filed in April. Both suits allege that UnitedHealth Group held onto forfeited funds from employees after they left the company and used those funds to improperly lower its own costs. UnitedHealth’s two suits came shortly after the insurer settled another 401(k) lawsuit after three years of litigation. In December, the insurer agreed to pay $69 million to settle that class-action lawsuit, Snyder v. UnitedHealth Group, et al., believed to be the largest settlement ever in an ERISA case stemming from poorly performing investment options.
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In the latest Cigna suit, Adams et al. v. the Cigna Group et al., the plaintiffs allege that Cigna and its retirement plan committee misused more than $17 million in 401(k) plan assets over several years to offset company costs, in violation of ERISA. Cigna Group’s 401(k) has $13 billion in assets.
According to the IRS, 401(k) forfeited funds—funds from employee accounts of departed workers who left the company before becoming fully vested in the retirement 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. Beginning in 2019, Cigna “consistently and reflexively” chose to use 401(k) forfeitures to reduce to reduce its own matching contributions to the plan, instead of using this money to reduce the administrative expenses charged to workers, the lawsuit alleges. The complaint also alleges that Cigna failed to prudently monitor the use of plan assets, resulting in millions of dollars in lost investment gains and additional out-of-pocket expenses for its 93,000 participants.
In May, a similar 401(k) lawsuit was filed against Cigna in the same district court in Pennsylvania. In Reven et al. v. The Cigna Group 401(k) Plan Retirement Plan Committee, former employees accused 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. As a result, the suit alleges, participants lost millions of dollars in returns. In this lawsuit, employees also alleged 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.
More than 50 class-action lawsuits have been filed in the past two years by employees challenging how employers use the “forfeited funds” from departing employees who leave before they are fully vested. This recent spate of forfeiture suits began with a 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, that plan’s terms required using forfeitures to lower plan expenses before using them to reduce employer contributions, according to the DOL’s complaint.
Last month, another major health insurance company, Kaiser Foundation Health Plan, saw its 401(k) “forfeited funds” lawsuit dismissed, while courts seems split on these lawsuits.
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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.
