ts from a reduction in its future employer contributions at the expense of plan participants who have to pay for certain expenses that are charged to their 401(k) accounts.The claim is surprising, and potentially problematic, for employers because using forfeited employer contributions to offset future employer contributions is a longstanding, common practice that has been approved by the Internal Revenue Service (“IRS”). From a business perspective, imposing a vesting schedule on employer contributions, such as matching contributions, to a 401(k) plan is a useful retention tool. When employees terminate employment before becoming fully vested in their employer contributions, the forfeited amounts are allocated to the 401(k) plan’s forfeiture account. 401(k) plan documents typically provide flexibility for forfeited employer contributions to be utilized to either offset future employer contributions or to pay plan expenses. IRS guidance, including proposed regulations issued last year (88 FR 12282 (Feb. 27, 2023)), approve of this approach. Logically, employers typically opt to utilize the forfeited amounts to offset future employer contributions.Surprisingly, to date, the four district court rulings on motions to dismiss have been mixed, so employers will want to be mindful that these lawsuits may continue for at least the near term. For example, the lawsuit against Intuit (Rodriguez v. Intuit Inc., No. 23-cv-05053, 2024 WL 3755367 (N.D. Cal. Aug. 12, 2024)) survived a motion to dismiss, while the lawsuits against HP (Hutchins v. HP Inc., No. 23-cv-05875, 2024 WL 3049456 (N.D. Cal. June 17, 2024)) and BAE Systems (Naylor v. BAE Systems, Inc., No. 1:24-cv-00536, 2024 US DIST LEXIS 160188 (E.D. Va. Sept. 5, 2024)) were dismissed. The 401(k) plan documents in these lawsuits each included a provision allowing the employer to utilize forfeited amounts to offset future employer contributions, which makes the denials of the defendants’ motions to dismiss more surprising.With 401(k) plan documents ty

1)(A) and (B), 403(c)(1) and 406(a)(1)(A) and (D), as well as 406(b). It is no surprise, however, that the Qualcomm decision was not the last word on the forfeiture cases.Less than one month after the Qualcomm decision was issued, on June 17, 2024, the United States District Court for the Northern District of California (Judge Freeman) issued the second substantive ruling in a forfeiture complaint, granting HP Inc.’s motion to dismiss. Hutchins v. HP Inc., et al., 23-cv-5875 (N.D. Cal. 6/17/2024). In a well-reasoned discussion, over 20 pages, the district court in HP Inc. addressed both defendants’ and plaintiff’s arguments and, ultimately, ruled in favor of the defendants.The HP Inc. court, like the Qualcomm court, agreed that Treasury regulations did not foreclose the plaintiff’s claims. In particular, the HP Inc. court concluded that the plan at issue was not the type of plan to which 26 C.F.R. § 1.401-7(a) applied. In addition, the court concluded that Treasury’s proposed language (88 FR 12282-01, Feb. 27, 2023) also did not apply to HP Inc.’s particular plan. Even so, the court concluded: “Although neither authority forecloses Plaintiff’s theory as a matter of law, the Court agrees with Defendants that these authorities may be considered as persuasive authority in evaluating the plausibility of Plaintiff’s claims.”The HP Inc. court then found that the defendants were acting as fiduciaries when they decided to allocate forfeited amounts to reduce employer contributions rather than to pay plan expenses. In particular, the court held that, while the decision to include three options for the use of forfeited amounts in the plan was a settlor function not subject to ERISA’s fiduciary rules, that was not the end of the analysis: “Plaintiff’s challenge is not to § 11(h) of the Plan [providing the three options], but to Defendants’ selection of one of the options under § 11(h)” and, therefore, the court concluded, “Defendants acted as fiduciaries when they determined how to allocate forfeited amount

ction 4213(a)(2) states that withdrawal liability shall be determined by actuarial assumptions and methods set forth in PBGC regulations. Are these regulations entitled to deference? The Loper Bright decision answers this question in the affirmative stating that where Congress has expressly delegated a determination to an administrative body such delegation will be respected and will remain untouched. Therefore, the Loper Bright decision does not change the deference given to statutory regulations. A large number of regulations issued by the agencies are interpretative regulations, regulations issued by agencies after compliance with the notice and review procedures of the Administrative Procedure Act. Under Loper Bright, a court will examine the agency's regulations to ensure that the agency engaged in "reasoned decisionmaking" in compliance with the APA, but even if it did so, its regulations are entitled to no special deference by the court. For example, the IRS proposed regulation 88 FR 12282-01, that plan forfeitures may be utilized to either reduce employer contributions or be allocated to plan participants, would be entitled to no deference, even if finalized, in litigation asserting that such discretion constitutes a breach of fiduciary duty. Similarly, Section 401(a)(9) regulations that affect the ability to defer death benefit distributions to the end of a 10-year period and then pay the benefit in a lump sum are entitled to no deference when determining whether Congress intended installment payments to continue during that 10-year period. The Impact of Corner Post v. Board of Governors on the Employer's Ability To Challenge Agency ActionThe Supreme Court ruled in CornerPost that the time period for challenging an agency's regulation or ruling is six years from the date of the injury to the plaintiff and not six years from the date of enactment of the regulation unless challenges to an agency's regulation are governed by a statute of repose that expressly provides th

er:Plaintiff contends that nonvested forfeited contributions are to be considered plan “assets.” Plaintiff has not cited a case and this Court has not found one. ERISA does not define “assets.” Consequently, whether nonvested forfeited contributions fall within the definition of “assets” is still an open question.The Court also denied Qualcomm’s motion to dismiss Plaintiff’s 406(a)(1)(A) & (D) and 406(b) claims. In so doing, the Court observed that “neither side has identified a court decision that adopts their interpretation of § 1106, and this Court has found none” and that “[a] plausible § 1106(b) violation is the easier claim for relief for Plaintiff to make based on a plain reading of the statute” (apparently because the self-dealing nature of Qualcomm’s alleged misconduct appears straightforward to the Court).Qualcomm’s final argument based on Treasury’s proposed language that would give plans the choice of using forfeited contributions to fund an employer’s future contributions (88 FR 12282-01, Feb. 27, 2023) was also rejected by the Court.The proposed regulation has not yet been adopted. And it is noteworthy that the regulation is proposed by the Secretary of the Treasury rather than the Secretary of the Department of Labor. ERISA specifies that it is the Secretary of Labor who has authority to define what are assets of a pension plan. If adopted, the rule would certainly mean favorable tax treatment by the Internal Revenue Service of plan actions taken by fiduciaries in Defendants’ shoes. But the rule has not yet been adopted and has no force of law. What persuasive value it does have is not sufficient to persuade this Court that Plaintiff’s claim is implausible.As a result of the Court’s decision, none of the claims in Plaintiff’s action were dismissed. Presumably, the case will now proceed discovery and other matters (such as class certification).Thoughts:In December, we noted that we did not share the general sentiment that the recent spate of forfeiture cases were unlikely to succeed

tributions would be eliminated, as Treasury believes the minimum funding requirements in the Code do not allow the use of forfeitures to reduce employer contributions in that manner. But the Proposed Rule would allow forfeitures to be taken into account as part of the plan’s reasonable actuarial assumptions for minimum funding purposes.Proposed Applicability Date and Transition RuleThe Proposed Rule would apply for plan years beginning on or after January 1, 2024, but taxpayers may rely on the proposed regulations until the applicability date.Request for CommentTreasury has specifically asked for comments addressing whether the rules for the use of forfeitures can be further simplified to reduce administrative costs and burdens; and whether any issues arise concerning other unallocated amounts (in addition to forfeitures) with respect to qualified retirement plans, and whether guidance should be provided addressing any such issues. See Use of Forfeitures in Qualified Retirement Plans, 88 Fed. Reg. 12282 (proposed February 27, 2023), which you can find here: Federal Register :: Use of Forfeitures in Qualified Retirement Plans