Litigation regarding a 401(k) plan’s use of forfeitures continues, but this time some good news to report.
Earlier this week, a district court dismissed, with prejudice, a plaintiff’s proposed class action against Honeywell International Inc. dealing with its use of 401(k) plan forfeitures.
Honeywell’s plan document, as is common, allowed Honeywell to use forfeitures to defray administrative expenses, reduce Honeywell’s employer contributions, and to correct errors made in allocating amounts to participants’ accounts and restoring accounts.
The proposed class action alleged that Honeywell should have investigated which permissible use of forfeitures was in the best interest of the plan participants. In reaching its decision, the court noted that the plaintiff did not dispute that all uses were in accordance with the plan terms. However, their allegation that Honeywell was obligated to use forfeitures to defray expenses automatically would have imposed a new burden on the plan that was not imposed by the plan terms.
Sponsors of 401(k) plans should work with ERISA counsel to ensure that their use of plan forfeitures is permitted under the plan terms. Plan sponsors will want to review their procedures for allocating forfeitures and ensure that they have engaged in a prudent process in reaching any determination on forfeiture use.
Key question if you have an individually designed plan:
Is a clarifying amendment to your 401k plan document now a good idea? Talk to us to learn more.
A copy of the opinion is available here: USCOURTS-njd-2_24-cv-04529-1.pdf