One of my favorite movie scenes in Donnie Brasco is when Lefty and the crew bust open city parking meters for dimes because they\u2019ve got to make their weekly nut. Sometimes, I feel like ERISA litigation is the same thing, plaintiffs\u2019 attorneys are searching for loose change in the form of new fiduciary causes of action. The latest example? Becerra v. Bank of America Corp. On Tuesday, Judge Max Cogburn Jr. in the Western District of North Carolina denied Bank of America\u2019s motion to dismiss a case that cuts right into a sore spot for plan sponsors: the use of forfeitures. The plaintiffs claim Bank of America improperly used forfeited plan assets\u2014millions of dollars\u2019 worth, to offset its own future contributions instead of paying plan expenses. In their view, that\u2019s not just bad optics, it\u2019s a fiduciary breach under ERISA.<\/p>\n
The Fiduciary Question<\/strong><\/p>\n Bank of America argued that its use of forfeitures was a \u201csettlor\u201d decision, outside the scope of ERISA\u2019s fiduciary rules. That\u2019s been the line many plan sponsors have leaned on when it comes to plan design decisions. But Judge Cogburn wasn\u2019t buying it\u2014at least not yet. He held that the plaintiffs had plausibly alleged a breach of fiduciary duty by claiming plan assets were used to reduce employer contributions, not for the exclusive benefit of participants.<\/p>\n It\u2019s worth noting that courts haven\u2019t spoken with one voice on this issue. Some judges have accepted the \u201csettlor\u201d argument. Others, like Cogburn here, have kept the door open for plaintiffs to proceed. The Department of Labor hasn\u2019t helped by filing an amicus brief in other forfeiture cases that supports employers, further muddying the waters.<\/p>\n Anti-Inurement and Prohibited Transactions<\/strong><\/p>\n The decision also breathes life into claims under ERISA\u2019s anti-inurement clause and prohibited transactions rule. The anti-inurement provision says plan assets can\u2019t inure to the benefit of the employer. Plaintiffs allege that using forfeitures to lower contributions is exactly that. On prohibited transactions, Cogburn noted that the complaint plausibly alleged \u201cself-dealing\u201d\u2014using plan assets in a way that benefits the employer.<\/p>\n If those claims stick, it could be costly. With a $63 billion plan covering over 250,000 participants, Bank of America is a very big target.<\/p>\n What It Means for Plan Sponsors<\/strong><\/p>\n This isn\u2019t a ruling on the merits, but it\u2019s a reminder that forfeitures are a landmine. The regulations allow forfeitures to be used to pay plan expenses or to reduce future employer contributions. Many sponsors, and many plan documents, lean on that second option. But cases like Becerra show that just because the regulations say you can doesn\u2019t mean plaintiffs\u2019 lawyers won\u2019t try to argue you shouldn\u2019t.<\/p>\n This is why I tell plan sponsors that \u201cdoing the right thing\u201d isn\u2019t always enough\u2014you have to be able to show it. Document your forfeiture policy, make sure your plan document is crystal clear,<\/p>\n and when in doubt, consider applying forfeitures toward legitimate plan expenses. That\u2019s a harder target for plaintiffs to attack.<\/p>\n Final Bell<\/strong><\/p>\n The Bank of America case is just getting started, but it\u2019s another skirmish in the larger war over how far fiduciary liability extends. Until we get more consistent rulings\u2014or better guidance from the DOL, plan sponsors need to treat forfeitures with the same care they\u2019d treat investment lineups or fee arrangements.<\/p>\n Because when it comes to ERISA litigation, the plaintiffs\u2019 bar is going to keep shaking every meter, looking for dimes.<\/p>\n <\/span><\/p>","protected":false},"excerpt":{"rendered":" One of my favorite movie scenes in Donnie Brasco is when Lefty and the crew bust open city parking meters for dimes because they\u2019ve got to make their weekly nut. Sometimes, I feel like ERISA litigation is the same thing, … Continue reading