DOL Continues to Back Plan Sponsors and Fiduciaries in ERISA Forfeiture Litigation

The Employee Retirement Income Security Act of 1974 (ERISA) forfeiture litigation landscape continues to evolve as courts continue to weigh in on the viability of this novel theory of ERISA liability. As explained in a previous Holland & Knight alert, forfeitures are employer contributions that participants forfeit when they leave employment before those contributions vest (i.e., before the monies are guaranteed to the employee).

Starting in September 2023, plaintiffs-plan participants have filed more than 80 class actions claiming that defined contribution plan sponsors and fiduciaries have breached their fiduciary duties of loyalty and prudence under ERISA by using forfeited employer contributions to offset future employer contributions instead of using the forfeitures to offset the plan administrative expenses being charged to participant accounts. Plaintiffs also allege that this practice 1) violates ERISA's anti-inurement provision because using forfeitures to offset future employer contributions causes plan assets to "inure" to the benefit of the employer rather than participants, and 2) constitutes an ERISA-prohibited transaction because it amounts to self-dealing by reducing the amount of contributions an employer would otherwise make to the plan.

To date, federal district courts have issued 32 opinions on whether the plaintiffs have sufficiently pled viable breach of fiduciary duty, prohibited transaction and/or anti-inurement claims based on the use of forfeitures to offset employer contributions. In the vast majority of these opinions, the district courts found that plaintiffs failed to satisfy their pleading burden.¹ Challenges to several of these opinions are now pending in the U.S. Courts of Appeal for the Third, Eighth and Ninth Circuits.

As discussed in a previous Holland & Knight alert on July 9, 2025, the DOL weighed in for the first time on the viability of plaintiffs' forfeiture claims theory in an amicus brief filed with the Ninth Circuit in Hutchins v. HP Inc. In its brief, the DOL noted that it had chosen to speak on this issue because it "has a substantial interest in fostering established standards of conduct for fiduciaries by clarifying the Secretary's view that a fiduciary's use of forfeited employer contributions in the manner alleged in this case, without more, would not violate ERISA." It also explained that the plaintiff's complaints regarding the use of forfeitures to offset employer contributions contradicts "[t]he established understanding for several decades … that defined contribution plans … may allocate forfeited employer contributions to pay benefits for remaining participants rather than using those funds to defray administrative expenses." Additionally, the DOL explained that the plaintiff's theory of liability failed to take into account the limitations placed on a fiduciary by the plan sponsor/settlor.

The DOL reinforced its support for plan sponsors and fiduciaries facing plan forfeiture claims in three amicus briefs it filed in the Third and Ninth Circuits in January 2026.²  In these briefs, the DOL explained that it continued to speak on the merits of forfeiture claims because it "must endeavor to assure the uniformity of enforcement of the ERISA statutes³ and it "has a substantial interest in fostering established standards of conduct for fiduciaries by clarifying the Secretary's view that a fiduciary's use of forfeited employer contributions in the manner alleged in th[ese cases], without more, would not violate ERISA."⁴

The DOL Reinforces Its Arguments That Fiduciary's Decisions Are Constrained by Actions of the Plan Sponsor in Wright and Cain

In the Wright and Cain amicus briefs, the DOL largely reemphasized the arguments it asserted in Hutchins, including the distinction between settlor and fiduciary functions.⁵ The DOL explained that the design of the plan and funding of the plan are both non-fiduciary, settlor functions. It further explained that settlor decisions also include the plan sponsors' decisions relating to the timing and amount of contributions. This is significant because these settlor functions necessary impact and constrain a fiduciary's decision as to how to allocate forfeitures. Thus, according to the DOL, "the mere fact that the [plan fiduciary] decided to use Plan forfeitures to offset future employer contributions – an option explicitly granted by the Plan document – does not state a plausible claim for breach" of fiduciary duty.⁶

The DOL offered various scenarios to illustrate its point that fiduciary allocation decisions are constrained. In one scenario, the settlor-plan sponsor elects to contribute an amount equal to the difference between its matching contribution obligation and the amount of available plan forfeitures. The DOL explained that, if the fiduciary elected to use forfeitures to pay plan expenses rather than reduce employer contributions, the fiduciary would need to ask the plan sponsor to contribute additional funds to cover the unpaid matching contributions. "If the sponsor refused, then the Plan would be faced with a funding shortfall and unable to timely pay the matching contributions required by the Plan terms. The fiduciary would then need to engage in a potentially protracted legal dispute using Plan assets to obtain the full amount of matching contributions from the sponsor, while participants could lose out on the timely payment of these contributions and any interest and gain thereon."⁷

In another scenario, if the plan forfeitures were not allocated to employer contributions, the plan sponsor could elect "to amend the Plan and reduce the amount of matching contributions it would provide going forward to reflect its funding level and offset any losses from the one-time forfeiture dispute. Neither of these risks is present if the fiduciary simply chooses to use forfeitures to cover the remaining matching amount."⁸

The DOL explained that "these types of risks are appropriately factored into a fiduciary's assessment of which course of action best satisfies its duties of loyalty and prudence." And once the risks are properly factored, it is clear that the fiduciary's use of forfeitures to offset employer contributions is not a breach of fiduciary duty. Indeed, according to the DOL:

it is equally likely that the fiduciary acted with the 'exclusively purpose of … providing benefits to participants and their beneficiaries by ensuring that participants accounts were timely credited with the matching contributions they were owed under the terms of the Plan. Risking a funding shortfall and a potentially prolonged and expensive legal dispute with the sponsor in order to obtain a benefit the participants were not guaranteed by the Plan document and which the Plan sponsor could immediately recoup the following year, through plan amendment, appears perilous and not likely to be in the best financial interest of the Plan.⁹ 

The DOL's Amicus Brief in Barragan Focuses on Key Policy Considerations

The amicus brief in Barragan largely echoed the arguments made by the DOL in its prior amicus briefs. However, the DOL also focused on the policy considerations that should be taken into account by courts when reviewing the plaintiffs' forfeiture liability theory. Specifically, the DOL warned that the plaintiffs' pursuit of these types of claims could ultimately jeopardize employee benefits and harm the American worker.¹⁰ To that end, the DOL explained: "Unfortunately, ERISA litigants (or, more specifically, ERISA litigators) are now trying to contort well-intentioned shields into cynical swords that often hurt the American worker, not help her."¹¹

In its brief, the DOL offered two principles for the courts to consider. First, the DOL explained:

ERISA's fiduciary duties require plans like [the Company's] to be administered prudently and loyally. In other words, provided that the exclusive benefit of the plan participants and beneficiaries is what animates a decision, the process is what matters; so long as the means [the Company] employs demonstrate that it is running its plan with the loyal care required of a fiduciary, the ends on which it settles matter far less.¹²

The DOL went on to explain that because "every fiduciary decision is 'necessarily ... context specific,' … ERISA abhors per se, results-based theories of liability. Such theories are anathema to the principle that ERISA is a law of process."¹³

Second, the DOL explained that the plaintiff's "theory will accomplish little more than making employers like [the Company] think twice before giving their fiduciaries the option to use forfeited money to benefit their plan participants through fee offsets—or worse, before establishing the level of benefits that their workers will enjoy."¹⁴ The DOL emphasized that "[n]o employer is under any obligation to create a retirement plan at all, much less any specified level of benefits. Incentivizing plan creation and protecting flexibility is in the interest of the American worker" and, as such, the plaintiff's theory is "counterproductive and should be disposed of expeditiously by this Court."¹⁵

The DOL then went on to explain why the plaintiff's theory was "meritless" and focused on similar arguments it had made in its prior amicus briefs. As a starting point, the DOL reiterated the distinction between fiduciary and settlor functions, explaining that "the question of 'whether to cover [plan] expenses is a question of plan design, not of administration'" and thus is a settlor decision.¹⁶ The DOL then reasoned that the company's plan gave the administrator the option to use forfeitures to offset contributions or to pay administrative costs. Thus, the plaintiff's argument that forfeitures must be used to pay plan expenses was at odds with the plan language and would create an additional benefit for participants that is not in the plan.¹⁷

The DOL concluded its brief in the same manner that it started – by focusing on policy considerations. The DOL explained that the plaintiff's theory, "which is being tested throughout the four corners of this great nation, threatens to limit the flexibility of employers, and discourage them, in creating retirement plans for their employees."¹⁸ Moreover, according to the DOL, if the plaintiff's theory "were to succeed, it would likely mark the last time [the Company], or, for that matter, any other employer watching these cases proceed, would choose to include in its retirement plan an option to provide its employees with a similar benefit."¹⁹ In conclusion, the DOL called for a "swift end" to this case and affirmance of the district court's dismissal.²⁰

In a press release, DOL Solicitor Jonathan Berry explained that "[t]his filing is part of an ongoing effort by the Department to stop regulation by opportunistic litigation." He also stated that "[t]he Department previously advanced the same legal analysis in Wright v. JPMorgan Chase & Co. and Hutchins v. HP Inc., cases involving materially similar fact patterns in which the district courts likewise dismissed the claims. Together, these cases reflect a consistent application of ERISA principles governing fiduciary discretion."

Conclusions and Considerations

The wave of new decisions dismissing plaintiffs' forfeiture claims and DOL's three January 2026 amicus brief submissions are welcome developments for plan sponsors and fiduciaries. In speaking up, the DOL has made clear that it intends to continue its efforts to curb regulation by litigation. The law remains unsettled, however, as the appellate courts have not weighed in on the viability of the plaintiffs' novel theory of liability. As such, it is important that plan sponsors and fiduciaries continue to monitor case developments in this evolving area of law and consider what risk mitigation options may be available to them.

If you any questions about the impact of ERISA forfeiture litigation on your business or retirement plan, please contact the authors or another member of Holland & Knight's ERISA Litigation Team.

Notes

¹ Indeed, in the last two months, five district courts have issued orders dismissing forfeiture-related claims, including the U.S. District Courts for the Western District of Washington, the Eastern District of North Carolina, the Western District of Michigan, the Eastern District of Virginia and the Northern District of Oklahoma.

² Wright v. JPMorgan Chase, No. 25-4235 (9th Cir.), Dkt. 41.1; Cain v. Siemens Corp., No. 25-2564 (3rd Cir.), Dkt. 42; Barragan v. Honeywell International Inc., No. 25-2609 (3d Cir.), Dkt. 42.

³ Barragan, Dkt. 42 at 1.

⁴ Wright, Dkt. 41.1 at 1; Cain, Dkt. 42 at 1.

⁵ The plan forfeiture provisions at issue in the four appeals are similar. In Hutchins, the plan provided that forfeitures "may be used to reduce employer contributions, to restore benefits previously forfeited, to pay Plan expenses, or for any other permitted use." In Wright, the plan provided that forfeited amounts must be used to either 1) "reduce future contributions of the Participating Company" or 2) pay "such Participating Company's share of Plan expenses not paid directly by the Plan"; however, "if no future contributions are anticipated to be made by such Participating Company," forfeitures must be used to "reduce future contributions of the Bank or the Bank's share of Plan expenses not paid directly by the Plan." In Cain, the plan provided that forfeitures "shall be used as soon as practicable to pay reasonable administrative expenses of the Plan, other than expenses paid for by monthly charges to Members' accounts, or to reduce Employer Contributions." In Barragan, the plan provided that "[f]orfeited amounts may be applied to reduce … Employer Contributions …, to defray administrative expenses of the Plan, to correct errors made in allocating amounts to Participants' Accounts … or for any purpose permitted under IRS rules.""

⁶ Cain, Dkt. 42 at 13.

⁷ Id. at 17-18.

⁸ Id. at 18; Wright, Dkt. 41.1 at 17

⁹ Cain, Dkt. 42 at 20; Wright, Dkt. 41.1 at 19.

¹⁰ Id. at 3.

¹¹ Id.

¹² Id. at 4.

¹³ Id. at 4-5.

¹⁴ Id. at 5.

¹⁵ Id.

¹⁶ Id. at 7-8.

¹⁷ Id. at 11-12.

¹⁸ Id. at 18.

¹⁹ Id.

²⁰ Id. at 19.

Information contained in this alert is for the general education and knowledge of our readers. It is not designed to be, and should not be used as, the sole source of information when analyzing and resolving a legal problem, and it should not be substituted for legal advice, which relies on a specific factual analysis. Moreover, the laws of each jurisdiction are different and are constantly changing. This information is not intended to create, and receipt of it does not constitute, an attorney-client relationship. If you have specific questions regarding a particular fact situation, we urge you to consult the authors of this publication, your Holland & Knight representative or other competent legal counsel.