A year ago, Bank of America was sued by participants for improperly benefitting from the 401(k) plan money forfeited by employees who left the company.
While “courts have come to different conclusions” on what constitutes a fiduciary breach on cases that involve usage of forfeited funds, a North Carolina judge said on Tuesday that he denied Bank of America’s motion to dismiss a complaint alleging that the company improperly used forfeited retirement plan assets to offset its own contributions, allowing the case to move forward.
The BofA lawsuit, Becerra v. Bank of Am. Corp., alleges that "as part of a wrongful pattern and practice, defendants have wrongfully and consistently used forfeited non-invested plan assets for its own benefit, to reduce future employer contributions, rather than for the benefit of plan participants."
The suit also claims that the Bank of America, which had almost $63 billion in assets in its 401(k) plan that covered 254,477 plan participants, choose to use forfeited plan assets from employees who left the company to “benefit itself and not the plan or the plan's participants, defendants have placed its own interests above the interests of the plan and its participants," alleged in the suit.
In June, similar forfeited funds lawsuits were dismissed. Wells Fargo’s case in Minnesota was dismissed over misuse of 401(k) forfeited funds, and JPMorgan Chase’s suit over misuse of 401(k) forfeited funds lawsuit was dismissed in a California court.
These dismissals align with recent decisions from other federal courts rejecting challenges to employer use of forfeited funds under the Employee Retirement Income Security Act guidelines.
Similar 401(k) forfeiture fiduciary breach lawsuits, under ERISA, have been filed against Thermo Fisher Scientific, Tetra Tech, Honeywell, HP, Mattel, Intuit, Clorox, Thermo Fisher, Qualcomm and Intel, questioning the use of forfeited assets to reduce employer contributions in 401(k) plans.
Intuit, Clorox, Thermo Fisher and Qualcomm have filed motions to dismiss their lawsuits, arguing that participants suffered no injury, having received all the contributions required by the plan, however, Qualcomm's dismissal suit was denied, while Tetra Tech's lawsuit has been moved to arbitration.
The IRS proposed regulations in 2023 providing guidance as to when forfeitures may be used: 1) to pay plan expenses; 2) to reduce employer contributions; or 3) to make an additional allocation to participants. Often, the forfeited employer contributions go into a pooled account in the plan called the "forfeiture account."
SECURE 2.0 directed the Department of Labor to examine ways to improve plan information, and the DOL is expected to report to Congress with recommendations by the end of 2025.
Credit: AP
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