I am not a fan of lawsuits brought primarily to pressure a company into settling. I also believe employees should have a way to hold employers accountable when retirement plan promises are not honored.
That is why a recent forfeiture settlement caught my attention.
For the smaller employers I serve, the useful question is straightforward: What does your plan document actually require?
A choice and a required order are different
Forfeitures generally arise when employees leave before becoming fully entitled to their employer’s retirement contributions.
Depending on the plan’s terms, those funds may help pay plan expenses or offset employer contributions. Some documents allow a choice. Others establish an order that must be followed. Standard plan documents do not all give the same instructions.
A provision permitting either use is different from one requiring expenses to be paid first.
That distinction matters when evaluating a lawsuit.
What distinguished the Providence case?
In Halter v. Providence Health & Services, the complaint quoted language requiring forfeitures to pay unpaid plan expenses first, restore certain accounts second, and offset employer contributions only after those uses.
The plaintiff alleged that Providence charged participants expenses while using forfeitures to offset employer contributions. Her argument therefore rested on an alleged failure to follow specific instructions in the document.
Providence disputed that interpretation. According to the plaintiff’s settlement filing, Providence argued that it retained discretion over which expenses had to be paid first. The parties settled before the court resolved that dispute.
The settlement was valued at approximately $42.7 million. That included $21.4 million already held in unallocated plan accounts, an estimated $15.3 million in future expense payments, and a separate $6 million fund for approved fees and other settlement costs. It was not entirely a new cash payment to participants.
Why have other cases been dismissed?
In Hutchins v. HP, the plan permitted several uses of forfeitures and reserved discretion over how expenses would be paid.
The district court rejected the argument that the employer’s general responsibilities required it to pay expenses first despite those provisions. Participants had not alleged receiving less than their promised employer contributions or being charged excessive or unnecessary expenses.
The Department of Labor has also opposed an automatic expenses-first requirement. In its Honeywell filing, the department argued that choosing employer contribution offsets over expense payments does not, by itself, establish a violation when the plan permits that choice.
These cases ask different questions. Was the employer exercising a permitted choice, or departing from a required instruction?
What should a smaller employer do?
I would begin with a focused review with the plan administrator:
- Read the adoption agreement, basic plan document, and amendments together.
- Identify permitted uses, any required order, and who makes the decision.
- Compare those instructions with how forfeitures were actually used.
- Keep a written explanation of the approach and address any discrepancy.
If the employer wants a different approach, discuss whether a prospective amendment is appropriate. Changing the document going forward does not answer whether earlier administration followed the terms then in effect.
The Parting Glass
I would not label a forfeiture lawsuit frivolous simply because other forfeiture cases were dismissed. Nor would I treat a settlement as proof of wrongdoing.
The practical starting point is the promise the employer made in its own plan document. Where the document permits choices, evaluate the choice. Where it requires an order, follow that order.
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