The Current State of the Law in ERISA Forfeitures Cases

Since September 2023, ERISA plaintiff’s firms have filed approximately 60 class action lawsuits challenging the longstanding practice of plan sponsors using plan forfeitures to offset their employer contributions in 401(k) and 403(b) plans. Specifically, the plaintiffs in these cases allege that using forfeitures to offset contributions is a breach of ERISA’s fiduciary duties of prudence and loyalty, a prohibited transaction, and violates ERISA’s anti-inurement clause. In addition, plaintiff’s firms are actively trying to amend their existing complaints in traditional excessive fee lawsuits to add these new forfeiture claims.

As we approach the two-year mark for the first forfeiture lawsuits being filed, we are beginning to see some positive trends among the district courts reviewing these claims. But with dozens of motions to dismiss still pending all over the country and two Ninth Circuit appeals awaiting decision, the legal landscape remains unsettled. However, in a significant turn of events, the US Department of Labor (“DOL”) recently filed an amicus brief in the Ninth Circuit urging the Court to affirm the dismissal of the forfeiture lawsuit against HP Inc. for failure to state a claim (more on that below). DOL taking this affirmative step may encourage more district and appellate courts to dismiss these forfeiture lawsuits.

Motion to Dismiss Scorecard

By our count, 10 federal district courts in eight states have issued substantive rulings on motions to dismiss in 15 forfeiture cases. Of those 15 cases, the district courts granted motions to dismiss in 11 (six with prejudice) and denied motions to dismiss in four. Three of the dismissed cases are currently on appeal in the Ninth Circuit (HP Inc., Knight-Swift Transportation, and JPMorgan). While the deadline to appeal has passed in BAE Systems, we are waiting to see whether the plaintiffs appeal the dismissal in Wells Fargo, which would be heard by the Eighth Circuit.¹ The table below is a chronological list of the motion-to-dismiss rulings to date.

Trends in District Court Ruling

While dismissals currently lead denials by a count of 11-4, an even higher percentage of the rulings since the Qualcomm and Intuit decisions have favored plan defendants, including a stretch of seven consecutive decisions from April to June 2025. However, as soon as the benefits industry started to breathe a brief sigh of relief, a federal judge in the Central District of Illinois went against the grain and largely denied the motion to dismiss in the case against North American Lighting. Thus, district court judges who are generally predisposed to deny motions to dismiss may continue to do so—unless and until appellate courts side with the plan defendants. And because a district court’s denial of a motion to dismiss is not immediately appealable, those cases move to discovery rather than an appeal to the federal appellate court.

Article III Standing

Several plan defendants have made standing arguments in their motions to dismiss. Most recently, the district court in Wells Fargo dismissed the forfeiture lawsuit on standing grounds.² Although the plaintiffs argued the plan’s forfeitures should have been used to reduce their share of the plan’s recordkeeping and administrative expenses or allocated directly to their plan accounts, the district court held this was not a sufficient injury for standing because the plaintiffs were ultimately seeking benefits that were not promised to them by the plan. The court emphasized that the plan did not authorize using forfeitures to pay individualized plan fees or to top off participant accounts. Citing Eighth Circuit precedent and the Supreme Court’s decision in Thole v. U.S. Bank, the court held that, because the plaintiffs were already receiving the benefits they were due under the plan, they lacked standing to challenge how Wells Fargo used the plan’s forfeitures.³

Prior to the Wells Fargo decision, some other district courts determined that the plaintiffs had adequately alleged standing even though the courts ultimately held that they failed to state an actionable forfeiture claim. For example, in Honeywell, the district court granted the plan defendants’ motion to dismiss for failure to state a claim. But, before doing so, it first concluded the plaintiff had sufficient standing to sue because, accepting her assertions in the complaint as true, she “suffered a ‘concrete and particularized’ injury traceable to the [defendants’] conduct” that was redressable by the court.⁴

Per Se Fiduciary Breach (Duty of Prudence and Loyalty)

The vast majority of forfeitures complaints espouse the theory that allocating forfeitures to offset employer contributions is a per se fiduciary breach because, according to the plaintiffs, forfeitures should first be used to pay plan expenses or allocated directly to participant accounts.⁵ On this view, “using forfeitures to ‘pay plan administrative expenses’ would always be in the participants’ best interest because that option would reduce or eliminate amounts otherwise charged to their accounts to cover such expenses.”⁶ While a few courts have accepted these conclusory assertions as sufficient at the pleading stage,⁷ the majority of courts have agreed with Hutchins v. HP Inc. and rejected this per se theory as overbroad and inconsistent with the Supreme Court’s directive that duty of prudence claims require a “context specific” inquiry.⁸ This includes looking at the reasonable conduct of a plan sponsor’s peers. As one district court recently concluded, to state a plausible claim, plaintiff must “plead something more than an ordinary use of forfeited funds to pay future employer contributions, or in other words, behavior that is not consistent with the practices of perhaps all 401(k) plan fiduciaries.”⁹ In addition, these courts have emphasized that the plaintiffs’ “theory ignores that ERISA does not require fiduciaries to ‘maximize pecuniary benefits’ or to “’resolve every issue of interpretation in favor plan beneficiaries.’”¹⁰ More recently, courts are applying ERISA’s peer standard to use of forfeitures,

In its amicus brief, DOL agreed the plaintiffs’ theory goes too far, explaining that “the mere fact that the HP Plan Committee decided to use Plan forfeitures to fund matching contribution benefits—an option explicitly granted by the Plan document and the proposed Treasury regulation—does not state a plausible claim for breach.”¹¹ DOL also emphasized that the plaintiff “makes no allegation that the fiduciary’s administration of the Plan caused him to receive less than the full contribution promised to him by HP under the Plan.”¹²

Prohibited Transaction and Anti-Inurement Clause Claims

Out of the 15 motion to dismiss rulings, only the two earliest courts in the table permitted the prohibited transaction and anti-inurement claims to proceed to discovery: Qualcomm and Intuit. Every other court to address these claims—even the two other courts that allowed fiduciary breach claims to proceed—concluded that using forfeitures to offset employer contributions is not a prohibited transaction and does not violate the anti-inurement clause.¹³

With respect to the prohibited transaction claims, every district court since Intuit has held that the reallocation of forfeitures within a plan, including using them to offset contributions, is not a “transaction” under ERISA § 406(a) or 406(b).¹⁴ The DOL agreed with this position in its amicus brief, noting the HP Inc. court “correctly dismissed Plaintiff's self-dealing prohibited transaction claim under Ninth Circuit precedent.”¹⁵ Similarly, every district court to address the anti-inurement clause claim since Intuit has held that a plan sponsor’s indirect or incidental receipt of benefits arising from the forfeitures reducing their matching contribution obligations is not sufficient to state an anti-inurement claim. The courts have emphasized that ERISA’s anti-inurement clause generally requires the reversion of plan assets to the plan sponsor.¹⁶ Because, as noted above, the forfeitures never leave the plan, the anti-inurement clause is not triggered.

Plan Language Challenges

Recognizing that courts have been unreceptive to the overbroad per se theory, plaintiffs’ firms have sought to leverage a prior DOL enforcement action (Acosta v. Allen¹⁷), arguing that the defendant failed to comply with the terms of the Plan when using forfeitures. In these cases, the plaintiffs typically contend—often falsely—that the plan required that any forfeitures first be used to pay plan expenses before they could be used to offset forfeitures. Plaintiffs were able to avoid dismissal on this basis in Intuit.¹⁸ And other courts dismissing forfeiture claims have distinguished Intuit on the grounds that the plaintiffs specifically alleged in Intuit that the plan only authorized the use of forfeitures for a particular type of employer contributions.¹⁹

Nonetheless, some defendants have been able to successfully leverage their plan’s language to secure dismissal of forfeiture claims. For example, in cases where the plan language did not confer discretion in how to allocate forfeited amounts, defendants have successfully argued that the plaintiffs were improperly challenging a settlor, rather than fiduciary, function.²⁰ Defendants have also successfully leveraged plan terms that do not authorize using forfeitures in the way plaintiffs demand (e.g., paying plan administrative expenses). For example, one courtheld that the plaintiffs’ forfeiture claims failed because the plan terms did not permit the plan’s fiduciaries to allocate forfeitures to pay administrative expenses.²¹

As with all aspects of plan administration, plan sponsors should review their plans to ensure that their handling of forfeitures is consistent with their plan’s terms. As part of this review, plan sponsors should consider any related plan provisions regarding the payment of plan expenses, and whether those provisions affect which plan expenses may be paid using forfeitures. For example, in some circumstances, the plan may provide that forfeitures may only be used to cover plan expenses that would otherwise be paid for by the plan sponsor, and not plan expenses that are charged directly to participants (or deducted from their accounts).

Looking Ahead

Even though plan defendants have won more than 70% of the initial motion to dismiss rulings, plaintiff’s firms continue to file new forfeiture lawsuits at a frenetic pace. So far in 2025, we have seen more than two dozen new ERISA class actions filed with forfeiture claims, including in new jurisdictions in Pennsylvania, Oregon, Connecticut, Mississippi, and North Carolina. At the same time, only three appeals are currently pending involving forfeiture claims, all in the Ninth Circuit (HP, Inc., Knight-Swift Transp., and JPMorgan). As a result, it may still take months—if not years—for controlling appellate authority to develop on the plaintiffs’ new forfeiture theory.

In the meantime, there may be other developments to help stem the tide of forfeitures cases. For example, the IRS and the Treasury Department may finalize their proposed regulations from February 2023 (Use of Forfeitures in Qualified Retirement Plans, 88 FR 12282-01), which affirm that employers may use forfeitures to offset contributions. DOL may also propose regulations or issue sub-regulatory guidance regarding the use of forfeitures in defined contribution plans. With new leadership at the Employee Benefits Security Administration, and DOL having now filed an amicus brief in the Ninth Circuit, we anticipate DOL and EBSA may take a more proactive role in helping plan sponsors and fiduciaries navigate complex plan administration issues like the use of forfeitures. Overall, this may help to reduce the amount of frivolous ERISA class-action litigation.

¹ Although the district court in Nordstrom dismissed the forfeiture claim with prejudice, it has not yet entered final judgment in the case because it gave the plaintiffs the opportunity to amend their complaint with respect to certain of their other claims in the case.

² Matula v. Wells Fargo.

³ Although not a final ruling, a magistrate judge in Nykiel v. Smith & Nephew, No. 1:24-cv-12247 (D. Mass, July 11, 2025), Dkt. 59, recently issued a Report and Recommendation that the district court grant the plan defendants’ motion to dismiss the plaintiffs’ forfeiture claims for lack of standing.

⁴ Barragan v. Honeywell Int'l.

⁵ The only exception, according to plaintiffs, is if the plan sponsor is on the verge of insolvency and unable to fulfill its contribution obligations.

⁶ See, e.g., Heet v. Fresenius Medical Care, No. 25-cv-11644 (D. Mass., filed June 6, 2025), Compl. ¶ 74 (Dkt. 1).

⁷ Buescher v. N. American Lighting; McManus v. Clorox Co.; Perez-Cruet v. Qualcomm Inc.

⁸ Hutchins v. HP Inc.; Wright v. JPMorgan Chase; Steen v. Sonoco Prods.; Madrigal v. Kaiser Found. Health Plan; Sievert v. Knight-Swift Transp.; Barragan v. Honeywell Int’l; Dimou v. Thermo Fisher; Naylor v. BAE Systems.

⁹ McWashington v. Nordstrom, Inc., 2025 WL 1736765, at *14 (W.D. Wash. June 23, 2025).

¹⁰ Wright v. JPMorgan Chase (quoting Wright v. Oregon Metallurgical Corp., 360 F.3d 1090, 1100 (9th Cir. 2004)).

¹¹ DOL Amicus Brief, at 15.

¹² Id. at 17-18.

¹³ Hutchins v. HP Inc.; Buescher v. N. American Lighting; McWashington v. Nordstrom; Wright v. JPMorgan Chase; Steen v. Sonoco Prods.; Naylor v. BAE Systems; Dimou v. Thermo Fisher; Barragan v. Honeywell Int’l.; Sievert v. Knight-Swift Transp.; Madrigal v. Kaiser Found. Health Plan; McManus v. Clorox Co.

¹⁴ See, e.g., Dimou v. Thermo Fisher (an “intra-plan transaction, like forfeiture reallocation,” does not “implicate a prohibited transaction”).

¹⁵ DOL Brief, at 7, n.1.

¹⁶ Dimou v. Thermo Fisher; Barragan v. Honeywell Int’l; Hutchins v. HP Inc.

¹⁷ No. 17-cv-00784 (W.D. Ky., filed Dec. 27, 2017).

¹⁸ Rodriguez v. Intuit Inc.

¹⁹ See Hutchins v. HP Inc. (dismissing claim by distinguishing Intuit on the basis that the plaintiffs in Intuit alleged the forfeiture allocations were not authorized by the plan); Wright v. JPMorgan Chase (same); Bozzini v. Ferguson (same); McWashington v. Nordstrom.

²⁰ Naylor v. BAE Systems.; McWashington v. Nordstrom.

²¹ But see McManus v. Clorox Co. (finding cognizable breach-of-fiduciary-duty claim even though defendants’ use of forfeitures was undisputedly consistent with the plan’s terms but the plan expressly permitted use of forfeitures to pay plan expenses generally, as sought by plaintiffs).