ERISA claim can proceed against 401(k) plan

A federal judge has ruled that an ERISA class action can proceed alleging that administrators of a 401(k) plan breached their fiduciary duties by putting forfeited matching contributions toward reducing the employer’s matching obligations rather than toward defraying administrative expenses.

Under the terms of the plan administered by defendant Fresenius Medical Care North America, the defendant matched employee contributions to the plan. But when employees left before their matching contributions vested, their unvested funds were forfeited and returned to the plan.

Plan documents allowed the company to use the forfeited funds to pay administrative expenses or to offset employer matching contributions.

When the company allegedly used the funds to reduce its matching obligations while applying none to administrative expenses, a class of plan participants and beneficiaries asserted in a lawsuit that Fresenius violated its fiduciary duties under ERISA by putting its own financial interests over the interests of participants.

The company argued in a motion to dismiss that because the plan explicitly permitted it to use forfeited contributions to pay its own matching contributions, its conduct could not be considered a fiduciary breach.

U.S. District Court Judge William G. Young denied the motion, likening the case to Buescher v. N. Am. Lighting, Inc., a 2025 case from the U.S. District Court for the Central District of Illinois.

In Buescher, the plaintiffs accused plan administrators of reflexively choosing to use the forfeitures for their own interest rather than investigating which option would be the most prudent course of action in allocating the funds.

“The [Buescher] court rejected arguments that these allegations were speculative, that some forfeitures were allocated toward plan expenses during certain years, were insulated by compliance with the plan documents, or that the theory of imprudence described would require assuming the payment of employer contributions to be per se imprudent,” Young wrote. “So it is here. In the absence of binding authority, the Court must honor the allegations of the complaint at the motion to dismiss stage.”

The 21-page decision is Heet, et al. v. National Medical Care, Inc., et al.