(AP Photo/Elaine Thompson, File)
Amazon is the latest employer to face a class-action lawsuit over misuse of 401(k) funds. The suit alleges that the company used nearly $350 million in retirement plan contributions forfeited by employees to offset its own contributions, rather than to reduce plan-administration fees, violating its fiduciary duties under federal law.
In 2024, numerous class action 401(k) lawsuits were filed by plan participants over misuse of forfeited assets from former employees, including Bank of America, Wells Fargo, Siemens, and Nordstrom.
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Amazon allegedly allocated employee forfeitures to offset Amazon’s contributions, rather than using the funds to pay the plan’s administrative expenses or allocating forfeitures back to 401(k) plan participants, in violation of the Employee Retirement Income Security Act (ERISA), according to a complaint, Curtis v. Amazon.com, filed last week in Seattle federal court. Plan participant Cory Curtis alleges that Amazon engaged in “self-dealing” to offset the company’s own contributions, rather than reducing administrative fees for the plan’s more than 20,000 participants.
“The plan document gives the plan fiduciaries discretion to use plan assets that have been forfeited by plan participants for one of three purposes: (i) reduce future matching contributions; (ii) pay plan administrative expenses; or (iii) restore forfeited accounts,” according to the lawsuit.
Under the plan, “participants are immediately vested in their own contributions, as well as any actual earnings thereon, and 100 percent vested in company matching contributions and any actual earnings on such amounts after three years of service,” according to the suit. Employees who leave Amazon before becoming fully vested forfeit their unvested funds. As a result, between 2018 and 2023, approximately $349 million in forfeited matching contributions accumulated in the plan, according to the lawsuit.
Amazon’s 401(k) plan has more than $17 billion in assets and more than 1.3 million participants, according to its most recent Form 5500 filing in 2022. Amazon saved millions of dollars in contribution expenses by using the forfeited funds toward future employer contributions, the lawsuit alleges. Amazon continued to use forfeited funds to offset its company contributions “instead of allocating forfeitures to pay the plan’s administrative expenses (e.g., recordkeeping fees, investment management fees, and transaction fees) or allocating the forfeitures back to eligible plan participants,” according to the lawsuit.
The lawsuit seeks an order requiring Amazon to “make good to the plan any losses to the plan” resulting from each violation of ERISA, according to the suit.
The IRS proposed regulations in 2023 providing guidance as to when forfeitures may be used to pay plan expenses, to reduce employer contributions, or to make an additional allocation to participants. Often, the forfeited employer contributions go into a pooled account in the plan called the “forfeiture account.”
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From: BenefitsPRO
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Lynn Cavanaugh
Lynn Varacalli Cavanaugh is Senior Editor, Retirement at BenefitsPRO. Prior, she was editor-in-chief of the What's New in Benefits & Compensation newsletter. She has worked for major firms in the employee benefits space, Vanguard and Willis Towers Watson, as well as top media companies, including Condé Nast and American Media.
