The recent dismissal of the forfeiture lawsuit against Wells Fargo & Company caught my attention, not because I have any particular interest in defending Wells Fargo, but because it raises a much bigger question about the future of employer-sponsored retirement plans.
At issue was a familiar plan design feature, what to do with forfeitures. When employees leave a company before becoming fully vested, employer contributions that have not vested are forfeited. Most retirement plan documents allow those forfeitures to be used in one or more of three ways: to pay plan expenses, to be reallocated among participants, or to reduce future employer contributions.
This is not unusual. In fact, this type of discretionary language has existed in retirement plans for decades. I certainly have seen it in all of my small plan adoption agreements.
In the Wells Fargo case, the allegation was that the company used forfeitures to reduce future employer contributions instead of using them in a way that might have provided greater benefit to participants. The court ultimately dismissed the case because no participant could demonstrate actual harm.
And that is where I begin to worry.
I fully support legitimate litigation when it exposes real misconduct. Hidden fees, self-dealing, imprudent investment selection, and breaches of fiduciary duty deserve scrutiny. ERISA exists precisely because retirement assets must be protected from abuse.
But I am increasingly concerned that we are seeing a different kind of litigation emerge.
In this case, the plan document appears to have explicitly allowed multiple permissible uses for forfeitures. There was no allegation that the company violated the terms of the plan. There was no allegation that participants lost money. The argument appears to be rooted in the idea that even where discretion exists, a plaintiff may challenge the specific choice that was made after the fact.
That should concern all of us.
The problem is not simply whether a company ultimately wins or loses the lawsuit.
The problem is cost.
Even when employers are confident they acted appropriately, defending an ERISA lawsuit can cost hundreds of thousands or even millions of dollars in legal fees, discovery, compliance reviews, internal administrative time, and increased fiduciary liability insurance premiums.
At some point, companies begin making a rational calculation.
Not: “Did we do something wrong?”
But instead: “Is it cheaper to settle than to defend ourselves?”
And that creates a dangerous incentive structure.
When businesses settle simply because litigation is expensive, plaintiff firms learn that even weak (non-existent?) legal theories can become profitable. More lawsuits follow. More employers become cautious. Administrative costs rise.
And eventually, those costs do not disappear.
They are passed on.
Higher plan expenses. Higher insurance premiums. More administrative burden. More employer hesitation in offering generous retirement benefits.
And here is my greatest concern.
If employers increasingly conclude that offering retirement plans exposes them to endless litigation over routine administrative decisions — even when they follow the governing plan document — we may begin weakening the very retirement system we claim to be protecting.
Fewer employers may want to offer plans.
Fewer businesses may choose generous employer contributions.
More employers may decide the regulatory and litigation burden simply is not worth the risk.
Ironically, litigation brought in the name of protecting participants may ultimately reduce retirement opportunities for participants.
The Parting Glass
We should absolutely hold bad actors accountable.
But if every lawful administrative decision becomes grounds for expensive litigation, we risk turning ERISA from a shield that protects workers into a weapon that discourages employers from offering retirement plans at all.
A strong retirement system is too important to become collateral damage in a legal arms race.