BENEFITS DIGEST

W.W. Grainger participants have asked the court for preliminary approval of a $2.85 million settlement of claims that the company used retirement-plan forfeitures, the unvested employer contributions left behind when employees depart, to offset its own contributions instead of paying plan expenses. Plaintiffs put the gross recovery at 20% of their $14.25 million loss estimate. Counsel plans to request attorney fees of up to $950,000 and expenses up to $60,000, plus awards of up to $10,000 each for three class representatives. Those amounts and administration expenses would come out of the fund, subject to court approval. Allocation is based on account balances over the class period. The agreement includes no plan amendment and no admission of wrongdoing.

The court gave final approval to the Providence Health settlement and entered judgment on October 21, closing a case over the plan’s use of forfeitures, the unvested employer contributions departing employees leave behind, for a class running from January 2018 through June 2026. The order directs allocation of both the net cash fund and unallocated plan assets, and records no objections. The approximately $42.7 million valuation combines settlement components, including unallocated plan assets; it isn’t an equivalent amount of new cash paid by Providence.

40% of FSA holders in EBRI’s 3.3 million-account database forfeited money in 2024. Among those who lost funds, the average was $404. Employers can reduce avoidable confusion by making spending deadlines and any plan-specific grace period or carryover easy to find, particularly around enrollment. The figures don’t mean every account lost $404 or that participants necessarily lost more than they saved in taxes. Most account holders, 89%, received distributions during the year.

A proposed class action accuses United Rentals and its retirement committee of allowing excessive recordkeeping fees and using forfeitures to reduce employer contributions instead of participant expenses. Forfeitures are employer contributions that workers leave behind before earning the right to keep them. The complaint describes a plan with about $2.64 billion and 27,059 participants in 2025 and alleges more than $2.5 million in excessive fees. It also challenges the treatment of roughly $14.37 million in forfeitures generated over six years. These are the plaintiff’s allegations, and the court has not ruled on liability or certified a class.

On October 19 the Supreme Court requested responses in three petitions asking when outdated actuarial assumptions in pension benefit calculations violate ERISA, Southern Co. v. Drummond from the Eleventh Circuit and the consolidated Sixth Circuit cases [FedEx v. Watt](https://www.supremecourt.gov/docket/docketfiles/html/public/26-360.html) and [Bakery Workers Pension Committee v. Reichert](https://www.supremecourt.gov/docket/docketfiles/html/public/26-387.html). Each respondent had waived a response, and all three petitions were distributed for the November 6 conference before the requests issued, with responses now due November 18. The ERISA Industry Committee filed amicus briefs on the Sixth Circuit dockets on October 16, arguing per [PLANSPONSOR’s report](https://www.plansponsor.com/eric-files-amicus-briefs-in-forfeiture-pension-calculation-cases/) that the ruling below would expose thousands of defined benefit plans to litigation over competing actuarial opinions. A response request signals interest, not a grant, but three in one day on one question is worth watching.

Cooley reviews the SEC staff’s October 15 interpretations on Form S-8, the registration statement for employee equity plans, covering awards granted before an initial public offering or in an acquisition, registration timing for restricted awards, fee treatment of forfeited awards, and share counting, with practice-oriented detail on when issuers can rely on the new positions. Staff interpretations are not rules, and the firm is careful to say so.

Three participants sued Citizens Financial Group and its plan fiduciaries over the CFG Retirement Savings Plan, which the complaint says held $3.22 billion for 23,881 participants with balances at the end of 2024. The investment claims challenge the retention of Fidelity Freedom Index target-date funds and Vanguard index funds, with the comparisons collected in an [appendix](https://digest.theinnerfirm.com/docs/davis-v-citizens-appendix-2026-10-19.pdf). Separate claims target administrative fees and the use of forfeitures, the employer contributions workers leave behind before vesting, to reduce company contributions rather than participant expenses, plus monitoring and prohibited-transaction theories. The forfeiture-allocation claim is aimed at the discretionary period before a January 2025 plan amendment reprioritized how forfeitures are used. These are allegations in a newly filed complaint, and no class has been certified.

In Estay v. Ochsner Clinic Foundation, the appeal from the dismissal of a forfeiture-reallocation suit against Ochsner’s 401(k) plan, the U.S. Chamber and the ERISA Industry Committee filed a friend-of-the-court brief defending the practice of using forfeited, unvested employer contributions to fund contributions for remaining participants. The brief argues that longstanding Treasury guidance supports the practice, that ERISA does not compel benefits beyond what the plan promises, and that a menu of permitted uses should not become a duty to pay participant expenses first. ERIC’s [announcement](https://www.eric.org/press_release/eric-files-amicus-brief-urging-fifth-circuit-to-uphold-employers-use-of-401k-forfeitures/) frames the stakes for sponsors. The groups are advocating for the employer side, not reporting a ruling, and the Fifth Circuit has not decided the appeal.

EBN’s case for early FSA reminders is behavioral. An estimate the article attributes to Money.com puts annual forfeitures around $4 billion, and the fix offered is repeated fall messaging with concrete eligibility examples that reaches spouses and dependents too. Plans differ on carryovers, up to $680, and on grace periods that can run to March 15, so reminders have to match the plan’s actual terms. The interviewed expert works for Health-E Commerce, which operates FSA Store, a commercial interest readers can weigh.

Mercer’s running compilation, first published in 2023 and updated October 13, tracks the blocked federal noncompete ban, targeted FTC enforcement and the state patchwork, with a 39-page linked resource covering developments through this fall, including Tennessee’s July 1, 2026 restrictions and Washington’s 2027 dates. For benefits teams the relevance runs through compensation-forfeiture provisions and deferred-compensation design. It is a reference document with entries of varying vintage rather than a new rule.

After a six-day trial, a Massachusetts federal judge [ruled](https://digest.theinnerfirm.com/docs/stephan-v-trader-joes-ffcl-2026-09-28.pdf) in Stephan v. Trader Joe’s Co. that the grocer’s 401(k) fiduciaries breached their duties on recordkeeping fees. The committee had never sought competitive bids or negotiated fees with its recordkeeper of more than fifteen years. The defendants prevailed on the investment claims and on claims involving forfeitures, employer contributions that departing workers hadn’t earned the right to keep. The award is $715,264, an overpayment the court measured from the recordkeeper’s own unprompted fee cut, plus prejudgment interest that brings the total near $1.2 million, and the court rejected the plaintiffs’ $9.2 million damages theory. Wagner Law Group’s Andrew Oringer calls the outcome sobering. The committee had checked the market, but the court found its efforts insufficient. PLANSPONSOR places the ruling in the forfeiture wave, 48 such complaints filed in 2025 against 29 the year before, with courts dismissing similar claims against AT&T, Home Depot and JPMorganChase.

December 31, 2026 is the deadline for most calendar-year retirement plans to document, in a formal amendment, the CARES, SECURE and SECURE 2.0 changes they’ve been operating under, from Roth catch-ups for high earners and long-term part-time eligibility through super catch-ups, higher RMD ages and the optional early-withdrawal provisions. Informal IRS guidance from September 16 suggests some SECURE 2.0 amendment deadlines may slip, but the firm still recommends documenting everything implemented as part of this year-end. The discretionary review is where the litigation lessons show up. The firm suggests forfeiture language that makes the allocation choice a plan-design decision rather than a fiduciary one, claims procedures with limitations and venue provisions, a look at arbitration language, and beneficiary procedures that answer what happens after a divorce or when a beneficiary dies before being paid.

Jay Keeton explains how a tax-exempt or governmental employer can combine a 457(b) plan with a separate 457(f) arrangement to provide additional executive compensation. A 457(b) plan can receive employee deferrals and employer contributions, subject to annual limits. A 457(f) arrangement can promise an additional benefit conditioned on continued service, like the article's example of a $200,000 retention benefit forfeited if the executive leaves within three years. The timing deserves care. The benefit generally becomes taxable income when the executive earns an unconditional right to it, even if payment comes later, so employers should coordinate vesting, payment, and payroll-tax treatment so the executive can cover the resulting tax bill.

When an employee leaves Verizon before the company's matching contributions vest, the money left behind, called forfeitures, has to go somewhere. Verizon's 401(k) plan gave its benefits committee a choice: use forfeitures to reduce the matching contributions Verizon owed, or use them to pay plan expenses. Year after year the committee chose the first option, at least $21.9 million in 2019 and $31.8 million in 2020, while participants paid plan expenses from their own accounts. Judge Arun Subramanian's September 30 opinion holds that the annual choice was a fiduciary decision, not protected plan design, and that participants plausibly allege the committee put Verizon's interests first. The loyalty, prudence, and oversight claims proceed to discovery; the prohibited-transaction claims are dismissed for good: in the court's reasoning, this internal allocation of forfeitures isn't a transaction with any counterparty at all. The court counted more than 20 district court decisions coming out both ways on these questions, with no appeals court yet to rule. A case schedule, including class certification, is due October 14.

A retrospective on six July decisions: the Ninth Circuit's refusal to compel arbitration in the Capital Group 401(k) self-dealing suit, the largely denied dismissal motion in the O'Reilly Automotive tobacco-surcharge case, Elevance's forfeiture-suit dismissal with 40 days to amend, the standing-based dismissal of the ATI and State Street pension risk transfer suit, the Dish Network target-date-fund case ordered to trial, and the D.C. Circuit's partial reversal of a $13 million withdrawal-liability judgment won by the IAM National Pension Fund.

A federal judge dismissed some claims over Rithm Capital's use of forfeited 401(k) money, the amounts left behind when employees leave before earning full ownership of employer contributions, but allowed others to proceed. Judge Ed Kinkeade dismissed the duty of loyalty claim, adopting the majority view that a fiduciary exercising discretion the plan grants over forfeiture allocation doesn't thereby breach loyalty, and threw out the prohibited transaction counts for failure to plead any transaction. But the prudence claim survived on allegations that forfeitures sat unallocated at year end under a flawed process, and a claim that plan assets were improperly used for the employer's benefit survived alongside it, a combination few of these plaintiffs have achieved. The plaintiffs have 14 days to revise the dismissed claims.

A federal judge dismissed the amended retirement-plan complaint against Legacy Health, its board, and its retirement committee. The plaintiffs have 30 days to try again. Judge Adrienne Nelson found the stable-value claims failed for want of a meaningful benchmark: none of the 13 comparator funds was alleged to be the same kind of guaranteed investment contract, and the court held the Ninth Circuit's approach to comparing investment funds, now under Supreme Court review in Anderson and set for argument October 6, applies to stable-value challenges too. A T. Rowe Price growth fund claim failed because underperformance against one benchmark, standing alone, doesn't plead imprudence. On forfeitures, the court joined the majority view that applying forfeitures to employer contributions, as the plan expressly permitted, is neither disloyal nor imprudent without more, found the anti-inurement claim failed because the money never left the plan, and noted the Ninth Circuit's pending Hutchins appeal on the same question.

Very few 401(k) fee cases reach trial. After a six-day bench trial, Judge William Young [found breaches](https://digest.theinnerfirm.com/docs/stephan-v-trader-joes-ffcl-2026-09-28.pdf) of the duties of prudence and loyalty in how the plan's recordkeeping fees were managed, found the company and its board failed to monitor the investment committee, and ordered the company to restore $715,264 to the plan, plus $471,957 in prejudgment interest, just under $1.2 million in all. The committee never sought competing bids through a request for proposals or information and never negotiated with Capital Group, the plan's recordkeeper and a trustee since at least 2009. The plaintiffs sought about $9.25 million, but the judge was not persuaded that the plan could have obtained their expert's proposed $21-per-person fee. He instead used Capital Group's unsolicited reduction from $48 to $40 per participant as evidence of what the committee could have negotiated earlier. Trader Joe's won everything else. The forfeiture claim failed mid-trial because the plan document assigns forfeiture allocation to the company, and the amounts used to offset contributions went straight into participant accounts. The claims over the plan's only actively managed large-growth fund failed because the watch-list process, quarterly reviews, and the addition of an index-fund alternative added up to a sufficiently robust process.

The wave of 401(k) forfeiture lawsuits produced [another employer win](https://www.napa-net.org/news/2026/9/mortgage-lender-prevails-in-401k-forfeiture-suit/). Three former employees of United Wholesale Mortgage claimed the plan committee breached its fiduciary duties by using forfeited employer contributions to reduce the company's future contributions instead of paying administrative expenses that participants otherwise bear. On September 23, Judge Susan DeClercq [dismissed the case](https://digest.theinnerfirm.com/docs/lapko-v-uwm-opinion-2026-09-23.pdf). The plan says the committee "may" use forfeitures for expenses and that amounts not used that way "shall" reduce company contributions, and the court held ERISA's duty of loyalty cannot "convert its permissive language into an obligation." Forfeitures remain plan assets subject to fiduciary duties, the court acknowledged, but nothing in the plan or the statute entitles participants to have them spent on expenses, and pointing to an alternative use does not by itself make the chosen use imprudent. The prohibited-transaction claims failed on Sixth Circuit precedent, though the court noted that courts elsewhere disagree. Here, the court rejected the argument that ERISA required the committee to use forfeitures for expenses when the plan made that use optional.

Three employer groups are urging the Ninth Circuit to uphold dismissal of a lawsuit over AT&T's use of forfeited 401(k) contributions. These are employer contributions employees give up when they leave before becoming fully vested, and the dispute concerns whether AT&T could use that money to reduce future employer contributions instead of paying plan expenses. ERIC, the U.S. Chamber of Commerce, and the American Benefits Council filed the amicus brief in Hernandez v. AT&T Services, one of dozens of similar suits. The district court dismissed the case in August without leave to amend, finding the plan document expressly permitted the practice and that no assets left the plan. The brief's argument is the one sponsors have made from the start: forfeitures may be used for several purposes when the plan allows it, and nothing in ERISA requires fiduciaries to maximize account balances instead of following the plan's terms. Plaintiffs filed 48 forfeiture complaints in 2025, up from 29 in 2024, per Encore Fiduciary, and the Labor Department has filed five briefs on the employer side. AT&T's plan holds more than $43 billion for about 203,000 participants.

Williams Mullen extends its year-end checklist series to governmental and church plans outside ERISA. Amendment deadlines depend on the type of plan and the change involved: for many nongovernmental plans, amendments documenting optional SECURE and SECURE 2.0 features already in use are due December 31, 2026, while required amendments can have later deadlines and governmental plans generally have additional time, a distinction the [IRS clarified this month](https://content.govdelivery.com/accounts/USIRS/bulletins/42b06be). Sponsors should document operational changes now so the eventual amendment matches how the plan actually works. The Roth catch-up requirement for participants whose prior-year FICA wages topped $150,000 applies for 2026 and rewards a payroll-system check. Also on the list: the IRS now issues determination letters for individually designed 403(b) plans, and the 2023 proposed forfeiture regulations, which generally require defined contribution forfeitures to be used within 12 months after the close of the plan year in which they arise, can be relied on now.

Charter Communications' 401(k) plan required forfeitures to pay plan expenses before reducing company contributions. Participants allege the company did the reverse. In O'Donnell v. Charter Communications, a Missouri federal court allowed fiduciary-breach claims to proceed based on that plan language in a September 14 ruling. The court dismissed other claims because the money remained in the plan and paid benefits, even if Charter may have used it in the wrong order.

Business and benefits groups have urged the Fourth Circuit to reject a challenge to Northrop Grumman's use of 401(k) forfeitures. Participants say the money should have reduced their administrative expenses rather than the company's contributions. The groups argue that ERISA doesn't require fiduciaries to provide benefits beyond those promised by the plan. Hall Benefits Law summarizes the competing positions in appeal No. 26-1258.

One appeal to watch on the forfeiture-reallocation theory is Clouse v. Northrop Grumman, No. 26-1258 (4th Cir.), from Judge Trenga's dismissal in the Eastern District of Virginia. The amicus brief the U.S. Chamber, American Benefits Council, and ERISA Industry Committee filed July 14 doubles as the wave's scoreboard: the groups count roughly 100 plan sponsors sued on the theory that using forfeited employer contributions to offset future contributions breaches fiduciary duties, and they argue that sixty years of Treasury authority, from the pre-ERISA regulation requiring pension forfeitures to reduce employer contributions through a 2023 proposed regulation blessing the same choice for defined contribution plans, plus ERISA section 514(d), forecloses it. That's the amici's argument, not yet any circuit's holding. Companion appeals are pending in the Fourth, Third, and Ninth Circuits, and the Labor Department has filed on the sponsor side in the Ninth.

The order behind today's First Thing draws the line that matters in these cases. The court distinguished decisions involving plans that gave fiduciaries a choice about how to use forfeitures; Liberty Mutual's plan required the money to go toward company contributions, so there was no fiduciary choice to attack. The court also rejected the two theories that recur across these cases: the forfeitures never stopped being plan assets, so nothing flowed out of the plan to the employer, and moving money between uses inside a plan is not the kind of insider bargain the prohibited-transaction rules police. Any benefit to Liberty Mutual from lower future contributions was incidental. An amended complaint is due in 21 days, no new defendants or claims, with a redline showing every change.

The rest of the order behind today's First Thing. Charter also argued that employees had to use the plan's internal claims process before suing, and that the alleged harm to the plan was too abstract to give them standing. The court disagreed on both. The individual plan administrators are out of the case for now, because the complaint never said what each of them personally did, but the door is open to add them back with more detail.

A class action against Philips North America over its $5.7 billion 401(k) plan survived dismissal in full last Thursday, in a ruling that touches both of the season's litigation waves at once. The prudence claim alleges the plan held onto a Prudential stable value fund while comparable guaranteed investment contracts outperformed it by an average of more than 40%, and the court held that First Circuit precedent protecting conservative investments did not control because the complaint identified specific steps the committee never took, requesting proposals from providers and negotiating the crediting rate. Whether the comparators are meaningful is a question of fact for discovery. The forfeiture claim survived on the loyalty theory. The court acknowledged the majority rule that steering forfeitures to reduce company contributions does not breach the duty of loyalty, then reasoned that a fiduciary who always exercises that discretion for the employer and never for participants, without ever investigating the alternative, may plausibly have acted out of self interest. The same theory survived in the Penn State Health case covered yesterday and failed for good in Lithia Motors.

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