DOL Weighs in on Forfeiture Case

The Department of Labor (DOL) filed an amicus (friend of the court) brief in a case (Hutchins v. HP Inc.) that claimed the employer breached its fiduciary duty to the plan by electing to use forfeitures to fund mandatory employer contributions rather than offset administrative expenses borne by participants. The U.S. District Court for the Northern District of California dismissed the claims, and a petition for appeal was filed with the United States Court of Appeals for the Ninth Circuit.

In its brief to the appellate court, the DOL largely sided with the employer in its request that the district court’s decision be upheld, noting that “the established understanding for several decades has been that defined contribution plans…may allocate forfeited employer contributions to pay benefits rather than to defray administrative expenses”.

The brief further discerned fiduciary decisions versus settlor functions, indicating “plan provisions made clear that the Plan sponsor, as settlor, is solely responsible for funding matching contributions and determining whether Plan expenses are paid by the sponsor or out of the Plan trust”. The DOL concludes that the plaintiff failed to “state a plausible breach of the fiduciary duties of loyalty and prudence”. 

The DOL’s decision to comment is a major development and may influence this outcome and as well as dozens of other similar pending forfeiture cases.