Yes, you can sue your employer under ERISA for alleged misuse of forfeited 401(k) funds. Courts have allowed workers to file these fiduciary-breach claims, but most early decisions have favored employers.
A forfeiture is the non-vested share of employer contributions left behind when a worker leaves before vesting. That money returns to the plan for reassignment under plan terms. Mayer Brown reports almost 80 class actions filed since September 2023 over this issue, in its 2025 review of defined-contribution litigation.
Table of Contents
- What misuse means in these cases
- What employers are allowed to do with forfeitures
- How judges have ruled so far
- What to check before you act
What misuse means in these cases
A forfeiture occurs when a departing employee leaves before vesting and the non-vested employer money returns to the plan. The plan document then controls how that money is reassigned.
Legal 500 and Buchanan Ingersoll and Rooney describe this return-and-reassign step as the starting point for the current lawsuits. Plaintiffs allege misuse when a sponsor uses forfeitures to offset future employer contributions instead of paying plan costs. Highland Consulting Associates reports workers claim sponsors saved millions in future contributions while participants kept paying avoidable administrative expenses from their accounts.
What employers are allowed to do with forfeitures
The IRS has long permitted forfeitures to reduce employer contributions, pay reasonable plan expenses, or restore previously forfeited accounts. Highland Consulting Associates notes that position was formalized in February 2023 proposed regulations, in its summary of the forfeiture dispute.
The Department of Labor took a similar employer-friendly view in a July 9, 2025 Ninth Circuit amicus brief in Hutchins v. HP. Groom Law Group reports the Department argued plan funding is a settlor function and using forfeitures for matching contributions does not itself breach loyalty or prudence.
How judges have ruled so far
Courts have largely favored employers at the pleading stage. Mayer Brown reports 19 of 25 decisions granted dismissal by late 2025, while six denied dismissal and appeals are pending in four circuits. In the first forfeiture case to reach trial, Judge William G.
Young ruled Trader Joe's did not violate ERISA by offsetting future contributions. Lawyer Monthly reports the decision in Stephen v. Trader Joe's covered over 40,000 participants, in its account of the trial ruling.
What to check before you act
The practical result turns on plan-document language and fiduciary process. Shepherd Financial advises sponsors should expressly authorize permitted forfeiture uses and follow that document consistently. The same language controls what a participant can challenge.
- Get the summary plan description and full plan document
- Find the section on forfeitures, employer contributions, and expenses
- Compare recent fee disclosures against any forfeiture balance in annual reports
- Save statements showing administrative charges taken from your account
- Ask an ERISA lawyer whether the document and process support a claim in your circuit while four circuit appeals remain pending