A federal district court judge denied Qualcomm Inc.'s motion to dismiss a lawsuit filed by a former employee and current company 401(k) retirement plan participant. Antonio Perez-Cruet alleges in his Employee Retirement Income Security Act (ERISA) suit that Qualcomm violated its duty of prudence when it used forfeited retirement funds to reduce its plan contributions rather than decrease administrative expenses borne by plan participants.
The case is Perez-Cruet v. Qualcomm Inc. et al., case number 3:23-cv-01890, U.S. District Court for the Southern District of California.
Qualcomm argued in its motion to dismiss that its plan documents allowed it to determine whether to apply forfeited funds to company plan contributions or administrative expenses. However, the judge rejected the company's argument, finding that the duty of prudence under ERISA supersedes allowable actions in plan documents. The judge ruled that Perez-Cruet met his burden of alleging a plausible cause of action. The allegation that Perez-Cruet and other plan participants suffered harm because of the company's choice to charge them for plan-related administrative expenses and instead use the forfeited funds to benefit the company was sufficient to survive Qualcomm's motion to dismiss.
According to Perez-Cruet, Qualcomm repeatedly used nonvested funds forfeited by former employees for its benefit rather than potentially covering the plan's administrative costs several years in a row. For instance, in 2021, Qualcomm used $1.2 million in forfeited funds to reduce its contributions to the plan, whereas plan participants paid over $954,000 in administrative expenses.
Perez-Cruet further characterized the forfeited funds as plan assets, which ERISA bars plans from using for their own purposes. Although the judge noted that ERISA's definition of plan assets is unclear and may not include forfeited plan funds, the plaintiff still articulated a potentially valid self-dealing claim that would violate fiduciary duties under ERISA.
The pending lawsuit is one of various ERISA lawsuits challenging how employers use 401(k) funds forfeited by former employees. Recently, another federal district court judge granted a motion by Tetra Tech to compel arbitration in a similar suit against the engineering services company.
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