Greetings\u2014this is Ary Rosenbaum picking up the referee\u2019s whistle to review a recent win for fiduciaries and what it signals for plan-sponsors, TPAs, and compliance teams.<\/p>\n
1. What Happened<\/strong><\/p>\n A federal judge dismissed a lawsuit against Peco Foods Inc. that challenged the company\u2019s practice of using forfeited 401(k) account balances to satisfy employer contribution obligations. The claim: departing participants\u2019 forfeitures were not being used in the \u201ccorrect\u201d order or for the \u201cright\u201d expense categories. The judge said no violation of the plan document or ERISA fiduciary duties was shown.<\/p>\n 2. Why This Matters<\/strong><\/p>\n In my \u201cRosenbaum voice\u201d pragmatism: forfeiture-reallocation litigation is a live and growing threat for defined contribution plans. Yet, this case underscores a few key takeaways:<\/p>\n \u00b7 Plan Document Is King \u2013 What the document says governs the outcome. The judge emphasized that fiduciary liability did not automatically arise just because someone questioned how forfeitures were used.<\/p>\n \u00b7 No Categorical Liability \u2013 Even under \u00a7404(a) of Employee Retirement Income Security Act of 1974 (ERISA), you\u2019re not liable simply for exercising discretion in forfeiture use. The specifics matter.<\/p>\n \u00b7 Operational Risk Still There \u2013 While this is a win for the defendant, the reasoning leaves open that other plans with less clarity in their documents or more ambiguous execution might still get hit.<\/p>\n 3. Three Questions Plan Sponsors, Fiduciaries & Advisors Should Ask<\/strong><\/p>\n Because yes, this is your \u201cto-do\u201d list (in true Rosenbaum style):<\/p>\n \u00b7 Does my plan document clearly articulate how forfeitures are allocated? If language is vague (\u201cmay apply,\u201d \u201cat the employer\u2019s discretion,\u201d \u201cas determined by the committee\u201d), you\u2019re inviting interpretation risk.<\/p>\n \u00b7 How is \u201cadministrative expense\u201d defined and treated in practice? The Peco decision leans on how the plan defined (or didn\u2019t define) expense categories and whether the fiduciaries followed that order.<\/p>\n \u00b7 Do our operations match the document? It doesn\u2019t help to have crisp language if your practice diverges. Contractors, record-keepers, audits: all must be aligned.<\/p>\n 4. Final Takeaway<\/strong><\/p>\n For plan sponsors: this decision is encouraging, but not a free pass. In the 401(k)\/403(b) space, forfeiture-allocation suits remain among the \u201chot topics\u201d of fiduciary exposure. The Peco outcome points to the defensive strength of:<\/p>\n \u00b7 A well-worded plan document<\/p>\n \u00b7 Clear, consistent operational practice<\/p>\n \u00b7 Documentation showing fiduciary decision-making aligned with the instrument<\/p>\n Treat forfeitures not just as accounting line-items, but as compliance potential. Make sure your plan docs reflect your operations, your vendor contracts reflect your practice, and your audit\/committee materials show you reviewed this.<\/p>\n <\/span><\/p>","protected":false},"excerpt":{"rendered":" Greetings\u2014this is Ary Rosenbaum picking up the referee\u2019s whistle to review a recent win for fiduciaries and what it signals for plan-sponsors, TPAs, and compliance teams. 1. What Happened A federal judge dismissed a lawsuit against Peco Foods Inc. that … Continue reading