Yet another national employer has been slapped with a suit alleging a fiduciary breach in their disposition of forfeitures.
More specifically, the suit (Prattico v. Mattel, Inc., C.D. Cal., No. 2:24-cv-02624, complaint 4/1/24) argues that “by failing to use forfeited funds in the Plan to eliminate or reduce the administrative expenses charged to participant accounts, and instead using such Plan assets to reduce the Company’s own contribution expenses, Defendants caused the Plan to receive fewer contributions that would otherwise have increased Plan assets and caused participants to incur expense deductions from their individual accounts that would otherwise have been covered in whole or in part by utilizing the forfeited funds to pay Plan expenses.”
The employer/plan in question this time is Mattel. The participant-plaintiff bringing suit is one Nicholas Prattico, represented in this action—as have the other half-dozen similar suits filed in this genre—by Hayes Pawlenko LLP (all filed in federal district courts in California). Indeed, similar (if not identical) claims have been filed by this law firm against Tetra Tech Inc., Honeywell, Thermo Fisher Scientific Inc. 401(k) Retirement Plan, Clorox, Intel, Qualcomm, Intuit and HP.
That said, and in arguments that have gotten shorter, the arguments put forth lately are no longer acknowledging that this practice is permitted by law, and at least in some cases, sanctioned by specific language in the plan document. The suit here emphasizes the exercise of “discretionary authority and control over how these Plan assets are thereafter reallocated.”
Moreover, they argue that “instead of acting solely in the interest of Plan participants by utilizing forfeited funds in the Plan to reduce or eliminate the administrative expenses charged to their individual accounts, Defendants used these Plan assets for the purpose of reducing its own contributions to the Plan, thereby saving the Company millions of dollars at the expense of the Plan which received decreased Company contributions and its participants and beneficiaries who were forced to incur avoidable expense deductions to their individual accounts.” In fact, in this case, as in the other suits filed thus far, the suit takes pains to detail the forfeiture amounts reallocated year by year—nearly $11 million during the class period, compared with some $6.3 million in administrative fees assessed against participant accounts.
To put that in context, the suit claims that “although ERISA requires Defendants to defray the Plan’s expenses, see 29 U.S.C. § 1104(a)(1)(A)(ii), throughout the class period 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.”
Intuit, Clorox, and Qualcomm have already filed motions to dismiss these suits—primarily arguing that the participant-plaintiffs suffered no injury (having received all the benefits/contributions required by the plan), and that the decision to offset employer contributions was a settlor, non-fiduciary decision in accordance with the plan document.
Stay tuned.
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.
