A growing legal trend is casting new light on how plan sponsors handle forfeitures within 401(k) plans.
Since late 2023, more than 30 class action lawsuits have been filed alleging that the use of forfeitures to offset future employer contributions violates several provisions of the Employee Retirement Income Security Act (ERISA)—including fiduciary duties of loyalty and prudence, the anti-inurement provision, and prohibitions on certain transactions.
These lawsuits challenge a long-standing and Treasury-recognized practice, arguing that using forfeitures to reduce employer contributions may not be in the best interest of plan participants—especially when administrative expenses could be offset instead.
Although these cases are still in early stages, some courts have allowed them to proceed past motions to dismiss. This signals that the legal theory is gaining traction and underscores the importance of reviewing your plan’s forfeiture provisions to ensure they align with both plan terms and evolving fiduciary expectations.
We encourage plan sponsors and fiduciaries to proactively assess how forfeitures are being used and documented. CTBK would be pleased to assist you with this and to answer any questions you may have
