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Participant Sues for Right to Defer More

Litigation

A new 401(k) suit has been filed—with a participant-plaintiff charging an employer with failing… to let him save as much as he wants to.

That’s right—one Lance Baird has accused his employer Hyatt Corporation of failing to properly honor his repeated requests to increase the amount of his salary that would go to his 401(k) account.

The suit (Baird v. Hyatt Corp., C.D. Cal., No. 2:22-cv-01620, complaint 3/10/22) alleges that Hyatt has a mandatory policy of requiring tipped employees (including Baird, who is currently employed by Hyatt as a server in Huntington Beach, CA) to be paid all charged tips in cash rather than through payroll, “interfering with Plaintiff’s and Class members’ ability to defer income under the terms of the Plan.”

The suit states that Hyatt does not provide its employees with the option to receive those tips later with their compensation paid through payroll, though when determining the taxable earnings for its employees, Hyatt includes the credit card tips that it requires Plaintiff and other tipped employees to report.

Now, because Hyatt mandates that credit card tips, which the suit notes “make up a significant portion of certain employees’ compensation,” be paid out to employees at the end of the shift rather than through payroll, “there are frequently insufficient amounts paid through payroll to cover the entirety of the employees’ deferral election for the Plan.” And in those cases, the suit says that the affected employees are only able to make after-tax contributions to the Plan to make up for the shortfall.

The suit states that the Plan Document “neither excludes tip income from their compensation nor provides for Hyatt’s mandatory Tips Policy which has the effect of discriminating against employees who receive tips as part of their income when compared to employees who do not receive tipped income.”

The suit asserts that Baird requested to defer between 8% and 50% of his salary during 2020, but his Form W-2 for the year showed less than 7% of his compensation actually going to the 401(k) plan.

Plaintiff Baird claims that the Hyatt defendants “failed to prudently consider their interpretation and administration of a Plan participant’s right to defer reported tips,” and that they instead “…appear to have simply adopted an arbitrary position denying Plan participants the right to defer reported tips paid by credit card and demanded that participants convert the tips to cash at the end of each shift, thereby avoiding the need to follow the participants’ election to defer a percentage of their credit card tip income.”

Ultimately, the suit alleges that Hyatt has breached its fiduciary duties under ERISA by failing to follow the terms of the Plan and failing to comply with Mr. Baird’s deferral elections pursuant to the Plan.”

Stay tuned.

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