An ERISA forfeiture lawsuit is a federal class action that challenges how a 401(k) plan uses forfeited unvested employer contributions. It starts when a current or former participant files a complaint naming the plan sponsor and plan committee. A forfeiture is employer matching money a worker loses by leaving before meeting the plan's vesting service requirement. Plaintiffs say using that money to offset future employer contributions favors the sponsor over participants.
Official resources:
- Read the official notice from Gibsondunn — Use this primary source to verify the official announcement.
- Read the official notice from Bloomberglaw — Use this primary source to verify the official announcement.
Table of Contents
- What money is at issue?
- What do plaintiffs claim?
- How does a case begin?
- What are the limits and what should readers watch?
What money is at issue?
Vesting sets how long you must work before employer contributions become yours. Leave early and the unvested share stays in the plan as a forfeiture.
Plans then face a choice. They can use forfeitures to pay costs borne by participants, add to other workers' accounts, or reduce the employer's next contribution. Gibson Dunn describes the lawsuits as attacks on that last choice, contribution offset, in its forfeiture litigation update.
What do plaintiffs claim?
Plaintiffs allege that choosing contribution offset breaches the duties of loyalty and prudence. They argue fiduciaries picked the option that saves the company money.
Cases typically add two related claims. One invokes the anti-inurement rule, which bars plan assets from benefiting the employer. The other alleges prohibited transactions tied to the sponsor's use of the funds.
How does a case begin?
A participant-plaintiff files a federal complaint against the sponsor and often the plan's administrative committee. The filing identifies the plan, the forfeiture practice, and the ERISA duties allegedly violated. The early path often looks like this: Bloomberg Law notes the wave grew after early orders let some claims reach discovery, in its appellate-level report.
- complaint alleges offset use instead of paying expenses or reallocating funds
- defendants move to dismiss for failure to state an ERISA violation
- court decides whether claims may proceed to discovery
What are the limits and what should readers watch?
Most district courts have granted dismissal motions against these claims, with growing skepticism toward the theory. Gibson Dunn reports several dismissals are now on appeal in the Third, Eighth, and Ninth Circuits in its forfeiture litigation update.
Regulatory context also matters. A separate IRS proposal would expressly allow forfeitures to pay expenses, reduce employer contributions, or increase other benefits when plan terms provide for it. For sponsors, plan language often controls which use is allowed, so documents should specify permitted uses and record a participant-first reason for the choice.