Siemens Is the Latest Firm Sued over Misuse of 401(k) Forfeiture Funds
Recently, numerous class action 401(k) lawsuits have been filed by participants over misuse of forfeited assets from former employees, including Bank of America, Wells Fargo and Nordstrom.
Siemens, the global technology and manufacturing company, is now the latest firm accused of misuse of its forfeited retirement funds in its $8.9 billion 401(k) plan, in a class action lawsuit filed in U.S. District Court for the District of New Jersey on August 23.
In Cain v. Siemens Corporation, Jim Cain, a participant in the Siemens retirement plan who is representing participants and beneficiaries, alleges that the company violated the Employee Retirement Income Security Act (ERISA) by using the assets of the plan “in its own interest.” Siemens failed in its fiduciary duty by using “forfeited” assets from former employees to offset future contributions rather than to reduce administrative costs for plan participants, according to the suit.
Siemens’ 401(k) plan included two options on how to use the forfeited funds, according to the complaint:
- Using forfeitures to reduce the company’s contributions to the plan. This option “is always in Siemens’ best interest because that option lowers the company’s contribution costs,” the complaint read. “However, that option might also be in the participants’ best interest if there is a risk that Siemens would default on its contribution obligation to the plan.”
- Using forfeitures to pay plan expenses. If Siemens was at risk of default on its “contribution obligation to the plan,” according to the complaint, this second option “is in the best interest of the plan’s participants because that option reduces or eliminates the amounts charged to their individual accounts to cover such expenses.”
However, the complaint states, in choosing between the options, Siemens “had a conflict of interest because they stood to benefit financially from choosing the first option and therefore had an incentive to choose the first option over the second option.”
Furthermore, Siemens, which had 41,010 participants in its 401(k) plan, failed to analyze “which option was in the best interest of the plan’s participants,” the complaint stated. The Siemens plan has had millions in forfeited assets since 2020 that were not used to offset participants’ administrative expenses.
Recently, there have been a rash of plan forfeiture lawsuits, which allege a company used assets forfeited by workers for its own financial gain. Earlier this month, Bank of America was sued by 401(k) plan participants over misuse of forfeited funds, while Nordstrom was hit with an ERISA lawsuit over misuse of forfeited funds and excessive 401(k) fees.
Wells Fargo was sued in June by participants over misuse of 401(k) forfeited funds, while similar 401(k) forfeiture fiduciary breach lawsuits, under ERISA, have been filed recently against Thermo Fisher Scientific, Tetra Tech, Honeywell, HP, Mattel, Intuit, Clorox, Qualcomm, and Intel. These suits question the use of forfeited assets to reduce employer contributions to 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 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.”
From: BenefitsPRO