Another suit has been filed against a large employer for allegedly not acting in participants’ best interest in their use of forfeitures—but with some twists in the arguments.
The target this time is the fiduciaries of the Honeywell 401(k) plan who, according to participant-plaintiff Luciano Barragan, have (1) breached their fiduciary duties under ERISA, (2) violated ERISA’s anti-inurement provision, and (3) engaged in “self-dealing and transactions prohibited by ERISA.”
As in the other cases in this new genre of litigation, it has been filed in California—though this time it’s the Central District rather than the North or South Districts—and by the law firm of Hayes Pawlenko LLP.
‘Defray’ Claim
One apparent difference in the claims; this one (Barragan v. Honeywell International Inc. et al., case number 2:24-cv-01194, in the U.S. District Court for the Central District of California) argues that “ERISA requires Defendants to defray the Plan’s expenses”—before going on to note (as they have in previous filings) that “Defendants have consistently failed to use the forfeited funds to pay Plan administrative expenses, and thereby reduce or eliminate the amounts charged to the participants’ individual accounts to cover such expenses.” They ultimately argue that “Defendants have consistently utilized the forfeited funds in the Plan exclusively for the Company’s own benefit, to the detriment of the Plan and its participants, by using these Plan assets solely to reduce Company contributions to the Plan” before going on to cite the specific dollar amounts applied to that purpose during the period of the suit.
The suit also presents an argument—refuted by plan sponsor defendants in several of the motions to dismiss in other, similar cases that, “While Defendants’ reallocation of the forfeitures in the Plan’s trust fund to reduce its contributions benefitted the Company by reducing its own contribution expenses, it harmed the Plan, along with its participants and beneficiaries, by reducing Company contributions that would otherwise have increased Plan assets and by causing participants to incur deductions from their individual accounts to cover administrative expenses that would otherwise have been covered in whole or in part by utilizing forfeited funds.”
One other difference—though this may be due to a distinction in the Honeywell plan document; there is no reference/acknowledgement that the plan document in question provided/permitted this use of forfeitures.
Other Arguments
As for the anti-inurement argument, the suit states that:
- The balance in a participant’s accounts that a participant forfeits when incurring a break in service prior to full vesting of the Company’s contributions to the participant’s account is an asset of the Honeywell Plan.
- By utilizing these Plan assets as a substitute for the Company’s own contributions to the Plan, thereby saving the Company millions of dollars in contribution expenses, Defendants caused the assets of the Plan to inure to the benefit of Honeywell, an employer, in violation of 29 U.S.C. § 1103(c)(1).
Ultimately, the suit maintains that “each Defendant is personally liable under 29 U.S.C. § 1109(a) to make good to the Plan any losses to the Plan resulting from violation of ERISA’s anti-inurement provision as alleged in this claim and to restore to the Plan all profits secured through their use of Plan assets, and is subject to other equitable or remedial relief as appropriate.”
As for the prohibited transaction claim, the suit alleges that, “By utilizing these Plan assets as a substitute for employer contributions to the Plan, thereby saving the Company millions of dollars in contribution expenses, Defendants dealt with the assets of the Plan in their own interest and for their own account.”
And demands a jury trial to resolve the dispute.
NOTE: In litigation there are always (at least) two sides to every story. However factual it may turn out to be, the initial lawsuit in any action is only one side, and one generally crafted toward a particular result. In our coverage you'll see descriptions of events qualified with statements such as “the suit says,” or “the plaintiffs allege”—and qualifiers should serve as a reminder of that reality.
