There have been 25 cases where plan sponsors have been sued over their right to use forfeitures to reduce employer contributions. 7 cases have had motions for summary judgments made by the plan sponsors. 2 cases have survived the motion and 5 cases have been thrown out. The latest winner is Honeywell. In New Jersey, Federal Judge Padin granted Honeywell’s motion and dismissed the plaintiff’s complaint without prejudice.
The plaintiffs in this case claimed that using forfeitures to reduce the plan sponsor’s contributions violated ERISA’s fiduciary duties. They argued that Honeywell always used forfeitures to reduce employer contributions and that its decision to do so constituted a breach of ERISA’s fiduciary duties of loyalty and prudence, as well as a breach of the “anti-inurement” provision in section 403(c)(1) of ERISA.
While Judge Padin said that the use of forfeitures to reduce contributions was a fiduciary decision, the Judge suggested that the plaintiff’s allegation that every time a plan administrator chooses to use forfeitures to reduce employer contributions it violates its fiduciary duties under ERISA is so broad as to be implausible. The plaintiff would have to show that such a decision was an actual breach.
