Another of the 401(k) plans sued for offsetting company contributions with plan forfeitures rather than reallocating them to participant accounts, has filed a motion to dismiss the suit.
The action comes after similar motions to dismiss filed by three (and now four) of the five firms sued on those grounds in recent weeks, including Qualcomm, Intuit, and Clorox.[i]
This motion to dismiss (Dimou v. Thermo Fisher Scientific Inc., S.D. Cal., No. 3:23-cv-01732, motion to dismiss 1/11/24) filed by the fiduciary defendants of the Thermo Fisher Scientific Inc. 401(k) Retirement Plan notes that the suit “seeks to bar the longstanding practice—acknowledged by both the Internal Revenue Service (‘IRS’) and the Department of Labor (‘DOL’)—of using forfeited benefits in a 401(k) plan’s trust fund to offset company contributions to the plan.”
According to the motion,[ii] the plan document allows forfeited benefits to be reallocated for one of two purposes: (1) “to pay [the] reasonable expenses of the Plan (to the extent not paid by the Employer),” or (2) “to reduce [the Company’s] Discretionary Contributions, Matching Contributions and/or other contributions payable under the Plan, for the Plan Year in which the forfeiture occurs or any prior or future Plan Year, as determined by the Company.” This, the motion states, is “consistent with IRS and DOL guidance acknowledging the use of forfeitures to cover company contributions.”
‘Alternative’ Reading
It goes on to state that the plaintiff’s “alternative reading of ERISA—which posits that it is illegal to utilize forfeitures to cover company contributions—flies in the face of this well-established practice as well as basic tenets of ERISA jurisprudence.” Laying the groundwork for a lack of standing to bring suit, the motion asserts that “there is no dispute that participants in Defendants’ pension plan—the Thermo Fisher Scientific Inc. 401(k) Retirement Plan (the ‘Thermo Fisher Plan’ or the ‘Plan’)—have received all of the benefits they are due under the terms of the Plan. Instead, Plaintiff suggests that Defendants had a fiduciary duty to try to convince the Plan’s sponsor, Thermo Fisher Scientific Inc. (the ‘Company’), to contribute more money to the Plan by allocating forfeitures to cover the Plan’s expenses.”
It goes on to note that, according to the plaintiff bringing suit, “if the Company had decided to increase its contributions to the Plan,[iii] such increases would have obviated the need for Defendants to deduct Plan expenses from participants’ retirement accounts, thereby increasing participants’ benefits.” That said, the defendants comment that the amount of money an employer contributes to a plan is a settlor decision that does not implicate an administrator’s fiduciary duties.
“The law is clear that an employer determines how much money it will contribute to a plan in its settlor capacity and may make such decisions solely in its own interest, without regard to the interests of plan participants. Because contribution decisions are settlor—not fiduciary—in nature, it follows that Defendants cannot breach any fiduciary duty to participants by failing to cause the Company to contribute more money to the Plan.” In fact, they go on to note that the plaintiff “has not alleged any facts to show that Defendants could have caused the Company to contribute more money, rendering Plaintiff’s theory of injury entirely speculative. Plaintiff’s claims for breach of fiduciary duty should be dismissed as a matter of law.”
Equally Flawed
The motion goes on to dismiss the other elements of the suit as “equally flawed.” It cites the argument that they violated ERISA’s anti-inurement provision, “notwithstanding case law holding that decisions about a company’s contributions to a plan, and the allocation of assets within a plan, do not implicate the anti-inurement provision.” Similarly, they cite the allegation that they violated ERISA’s prohibited transactions provisions, “once again ignoring case law holding that the allocation of assets within a plan is not a transaction prohibited by ERISA.” And if that were not sufficient, the motion notes that the plaintiff here “seeks to hold the Company liable for failing to monitor fiduciaries, notwithstanding that she has failed to state a viable claim for breach of fiduciary duty or allege any facts to suggest that the Company’s monitoring efforts were deficient.” For those “and other reasons,” they assert that the plaintiff has failed to state any claim upon which relief can be granted—and that the suit should be dismissed.
In essence, the arguments made by the defendants are:
- There’s no fiduciary breach because (a) funding a plan is a settlor, not a fiduciary function; (b) a fiduciary does not control a company’s decision to contribute assets to a plan; instead, the company makes plan funding decisions solely in its settlor capacity; and (c) payment of benefits in accordance with the plan document is not a breach of fiduciary duty.
- Additionally, they argue that there is no injury to the plan, that the plaintiff has failed to state a claim for violation of ERISA’s anti-inurement provision, nor have they stated a claim for violation of ERISA’s prohibited transaction provisions nor stated a claim for failure to monitor fiduciaries.
Stay tuned.
[i] The plaintiffs in all these suits are represented by a pair of lawyers from Hayes Pawlenko LLP, a South Pasadena, CA-based firm that positions themselves as an employment litigation firm “representing employees in disputes with their employers.”
[ii] There was an amended version of the suit because after she left the firm the plaintiff signed a severance agreement that included a collective/class action waiver. Notified/reminded that the filing of the suit as a class action violated this agreement, she amended the suit to remove the class action allegations and disclaim her intent to seek any individual relief pursuant to the suit. The motion to dismiss relates to that amended complaint.
[iii] The motion to dismiss acknowledges that, “in deciding how to allocate forfeitures, Defendants must be mindful of the amount the Company intends to contribute to the Plan. As Plan settlor, the Company has exclusive authority to decide how much money it will contribute to the Plan each year and can make its funding decisions solely in its own interest, without regard to the interests of Plan participants. Here, Plaintiff acknowledges that between 2017 and 2022, the Company exercised its decision-making authority over Plan funding decisions to reduce the Company’s contributions to the Plan in light of the forfeited benefits in the Plan’s trust fund. With the Company electing to reduce its contributions, Defendants allocated the forfeited benefits in the Plan’s trust fund to cover participants’ benefits, instead of allocating them to cover expenses. By allocating forfeitures in this manner, Defendants ensured that Plan participants received all of the benefits they were due under the terms of the Plan. Plaintiff does not allege otherwise.”
