A California federal district court judge has dismissed a novel proposed class action suit against HP involving the company's alleged misuse of 401(k) funds forfeited by former workers. The judge reasoned that nothing in federal benefits law compelled HP to use the funds for plan expenses rather than to reduce its employer contributions. The case is Hutchins v. HP Inc. et al., case number 5:23-cv-05875, U.S. District Court for the Northern District of California.
The judge rejected the plaintiffs' argument that HP's actions using the forfeited funds to cover employer contributions breached its fiduciary duties of loyalty and prudence. He characterized the argument as a novel legal theory but an unsuccessful one, as the plan does not provide plan participants with any benefit of paying administrative costs from forfeited 401(k) funds. The judge found that the plaintiffs' allegations were beyond the bounds of ERISA and contrary to what Congress and the U.S. Department of Treasury intended in drafting the statute to govern defined contribution plans.
Furthermore, the judge dismissed the claim that HP engaged in a prohibited transaction under ERISA by using the forfeited funds for its employer contributions, citing a U.S. Supreme Court ruling.
Current HP retirement plan participant Paul Hutchins filed his ERISA suit last year. Contributions to the plan are a mix of employee and employer contributions, but employer contributions only vest once an employee has worked at HP for three years. If an employee leaves the company before the three-year vesting period, they forfeit the funds, and HP decides how to use the unvested funds, which amounted to more than $2 million in 2021. HP used the forfeited funds to decrease its employer contributions to the plan. Still, Hutchins argued that to satisfy its fiduciaries duties under ERISA, HP should have applied the funds to defray plan-wide administrative costs for participants.
Hutchins' suit against HP is one of a recent spate of cases involving employers' disposition of 401(k) funds as a breach of fiduciary duty under ERISA. While the Court dismissed this case, at least one federal district court has allowed a similar suit to proceed. See Perez-Cruet v. Qualcomm Inc. et al., case number 3:23-cv-01890, U.S. District Court for the Southern District of California.
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