PLANSPONSOR - November/December 2024 - 6

RULES & REGULATIONS
2 Plan Sponsors
Win Against Forfeiture
Allegations
U
sing 401(k) plan forfeitures to offset
employer matching contributions
has been a long-standing
practice permitted by U.S. regulators. But
a slew of recent lawsuits is demanding that
the courts scrutinize this practice.
Michael Schloss, counsel at The
Wagner Law Group, counts 19 such recent
suits. So far, court decisions have been
split; judges rejected petitions for dismissal
by Qualcomm Inc. and Intuit Inc. and
dismissed suits against HP, Thermo Fisher
Scientific Inc. and BAE Systems.
The Thermo Fisher and BAE Systems
cases, for instance, were dismissed for
different reasons, but judges in both noted
the importance of the language used in the
plan documents, emphasizing that plan
sponsors must ensure that their actions
are authorized by the language in the plan.
On September 19, U.S. District Judge
Todd Robinson of the U.S. District Court
for the Southern District of California,
granted without prejudice Thermo Fisher's
motion to dismiss. Robinson concluded
that, because fiduciary provisions of the
Employee Retirement Income Security Act
" neither created a benefit nor abrogated
Treasury regulations, " nor " settled rules
regarding the use of forfeitures in defined
contribution plans, " the suit's allegation
that Thermo Fisher breached its fiduciary
duty was " too broad to be plausible. "
The Thermo Fisher Scientific Inc.
401(k) Retirement Plan, represented by
Covington & Burling LLP, has more than
$7 billion in assets and 56,872 participants,
according to its most recent Form 5500.
Plaintiff Konstantina Dimou, a participant
in the plan, and represented by Hayes
Pawlenko LLP, alleged in Dimou v. Thermo
Fisher Scientific Inc. et al. that the employer
6 PLANSPONSOR.COM November - December 2024 Art by Klaas Verplancke
breached its fiduciary duties by choosing to
use forfeited funds to its own benefit and
" solely to reduce future company contributions
to the plan. "
The original complaint was filed as
a class action in September 2023, but,
last December, Dimou removed her class
action allegations and filed an amended
complaint, seeking only planwide relief
in a representative capacity. In January,
Thermo Fisher filed its motion to dismiss.
Robinson's decision stated that the
Treasury Department and Congress have
" long understood " that forfeitures in DC
plans could be either: reallocated to the
remaining participants under a nondiscriminatory
formula, used to reduce
future employer contributions or used to
offset administrative expenses.
Generally, Robinson wrote, decisions
as to the design, establishment or modification
of an employee benefit plan are settlor
functions, because they do not " implicate
program management, " whereas transactions
that deal with a pool of assets-e.g.,
selecting investments-are fiduciary.
Dimou had stated that, when a
company transfers funds to the plan, those
become plan assets and Thermo Fisher
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