Conflicting Decisions Foreshadow Upcoming Disputes in ERISA 401(K) Forfeiture Class Actions

Conflicting orders on motions to dismiss from two California courts foreshadow issues for a new theory of ERISA liability. Employers have faced a recent wave of novel ERISA class actions that challenge the reallocation of defined contribution plan forfeitures. Such plans often include provisions requiring participants to work for the employer for a defined period before their right to any employer contributions in their account vests. When a participant terminates employment before vesting, their unvested, forfeited employer contributions are swept into the plan’s forfeiture account. The recent lawsuits challenge an employer’s decision to use this account to make later employer contributions rather than defray administrative fees otherwise payable by the participants. Plaintiffs allege that this decision violates ERISA’s fiduciary duties as well as anti-inurement and prohibited transaction rules.

In Perez-Cruet v. Qualcomm Inc., a district court in the Southern…