Bank of America Sued by 401(k) Participants over Misuse of ‘Forfeited’ Funds
BofA employees filed a lawsuit last week alleging that the company mismanaged its 401(k) plan by using assets forfeited by former workers for its own financial benefit.
Another employer has been hit with a fiduciary breach class action lawsuit, alleging misuse of 401(k) plan forfeitures: Bank of America was sued by participants last week for improperly benefitting from the 401(k) plan money forfeited by employees who left the company.
In a similar lawsuit, Wells Fargo was sued in June by participants over misuse of 401(k) forfeited funds, while similar 401(k) forfeiture fiduciary breach lawsuits, under the Employee Reiterment Income Security Act (ERISA), have been filed recently—against Thermo Fisher Scientific, Tetra Tech, Honeywell, HP, Mattel, Intuit, Clorox, Thermo Fisher, Qualcomm, and Intel—questioning the use of forfeited assets to reduce employer contributions in 401(k) plans.
Intuit, Clorox, Thermo Fisher, and Qualcomm have filed motions to dismiss their lawsuits, arguing that participants suffered no injury, having received all the contributions required by the plan. However, Qualcomm’s dismissal suit was recently denied. Tetra Tech’s lawsuit has been moved to arbitration.
The BofA lawsuit, Becerra v. Bank of Am. Corp., alleges that “as part of a wrongful pattern and practice, defendants have wrongfully and consistently used forfeited non-invested plan assets for [their] own benefit, to reduce future employer contributions, rather than for the benefit of plan participants.”
The suit also claims that “by choosing to use forfeited plan assets to benefit itself and not the plan or the plan’s participants, defendants have placed [their] own interests above the interests of the plan and its participants.”
The recent spate of forfeiture suits began with a Department of Labor (DOL) lawsuit against a tech company, which challenged how the plan sponsor used plan forfeitures. The case was settled in 2023; however, the plan terms required using forfeitures to lower plan expenses before using them to reduce employer contributions, according to the DOL’s complaint.
The IRS proposed regulations in 2023 providing guidance as to when forfeitures may be used: (1) to pay plan expenses; (2) to reduce employer contributions; or (3) to make an additional allocation to participants. Often, the forfeited employer contributions go into a pooled account in the plan called the “forfeiture account.”
The recently passed SECURE 2.0 legislation directed the DOL to examine ways to improve plan information, and the DOL is expected to report to Congress with recommendations by 2025.
From: BenefitsPRO