BENEFITS DIGEST

A former employee's class action against Lithia Motors over its $1 billion 401(k) plan produced a split ruling last Wednesday. The claims that the plan paid Merrill Lynch excessive recordkeeping fees survive, both as fiduciary breaches and as prohibited transactions with a party in interest, along with a claim that Lithia failed to monitor those fees. The theory that using forfeited employer contributions to reduce future company contributions violates ERISA is gone for good. The court called it novel and unsupported by present law, refused any amendment, and dropped a footnote cataloging the near-identical complaints the same plaintiffs' firm has filed elsewhere. A challenge to the plan's switch from mutual funds to collective investment trusts also failed, for lack of any concrete injury.

The stable value litigation wave picked up another survivor last Wednesday, in a ruling that teaches two lessons at once. A former Penn State Health employee had signed a severance release, and the court enforced it, dismissing his individual and class claims. But a release cannot waive claims brought on a plan's own behalf, so his derivative claims proceed. Those claims allege the fiduciaries kept an underperforming Great-West guaranteed investment contract while paying the same insurer recordkeeping fees 224% higher than average, and let forfeitures offset nearly twelve million dollars of the employer's own contributions without accounting for the conflict of interest. That loyalty theory survived where other forfeiture suits keep failing because it attacks the self-interested exercise of discretion, not the practice itself. The court also rejected an industry amicus attack on the complaint's comparator funds, holding that perfect comparators are not required at the pleading stage.

The ERISA Industry Committee argued in an amicus brief that Congress and the Treasury Department have long permitted employers' use of unvested funds to offset plan expenses.

The quarterly survey tracks health plan design challenges after Barbich v. Northwestern, the forfeiture line following the Eighth Circuit's standing dismissal in Matula, actuarial-equivalence rulings in the Sixth and Eleventh Circuits, and the Supreme Court's withdrawal-liability decision in M&K Employee Solutions, with the Fifth Circuit's en banc surcharge case and Anderson v. Intel on the watch list.

On remand from the Eighth Circuit, a Minnesota federal judge again dismissed the proposed class action claiming Wells Fargo used about $2.2 million in 401(k) forfeitures to reduce its own matching contributions rather than pay plan expenses, this time without prejudice. The ruling turns on standing rather than the merits, so whether the forfeiture-offset practice itself is permissible remains an open question.

A federal court in Florida dismissed fiduciary-breach and prohibited-transaction claims against Acosta over its use of plan forfeitures to offset the company's own employer contributions rather than pay plan administrative expenses. The dismissal came with leave to amend, so the theory isn't dead for this plaintiff group, but it joins a run of employer-favorable rulings reading plan language that permits either use of forfeitures as foreclosing a violation, echoing an Arizona decision reaching a similar result by a different route in Northcutt v. Gen Digital earlier this month.

An Illinois veterinary clinic agreed to pay $500,000 to settle a proposed class action claiming it invested nearly all of its employees' retirement savings in pharmaceutical and biotech stocks. The theory here is concentration, not fees (an unusual entry in a year dominated by recordkeeping-fee and forfeiture claims), and a reminder that a small plan with an idiosyncratic lineup carries a different risk profile than a large plan with an ordinary one.

The court held that Indiana employers may enforce clearly stated vacation-forfeiture policies, and that the Class Action Fairness Act’s home-state exception is not automatic; parties can waive the right to seek remand by waiting too long.

not because of arguments raised by the fiduciary defendants, but because the plaintiff's arguments were insufficient.

The Department of Labor urged the court to reject fiduciary breach claims, arguing the plaintiffs’ theory threatens employer flexibility and retirement plan sponsorship.

The groups are asking the Fourth Circuit to maintain a district judge’s verdict in Stana v. SAS Institute Inc.

Yet another plan fiduciary is getting support in its defense of a suit challenging its use of plan forfeitures to offset employer contributions.

The use of forfeitures to offset contributions continues to draw industry support.

Salek-Raham said, “I think after these cases came out, a lot of employers took a good look at their forfeiture language and their plan documents,” noting that courts are increasingly focused on plan