In another blow to frivolous lawsuits focused on the use of plan forfeitures, the Department of Labor (DOL) filed an amicus brief in support of the defendant in Hutchins v. HP. The case is on appeal to the Ninth Circuit after the lower court judge dismissed the claims on two occasions. This case is one of several lawsuits that have been filed claiming that forfeitures should be used to reduce plan expenses rather than offsetting employer contributions. A recent blog post noted the dismissal of two similar cases.
The DOL’s amicus brief is a strong show of support for the plan sponsor and will hopefully be weighed heavily by the court. The brief notes that using forfeitures to reduce employer contributions is a long-established and permitted practice that has existed for several decades. The brief defines this reasoning in more detail by stating that decisions regarding plan contributions are settlor decisions, not fiduciary decisions. Therefore, these decisions do not violate ERISA. The plan sponsor, as settlor, is solely responsible for setting the plan’s employer contribution rate and funding those contributions.
From the beginning, it was clear these cases would shine a light on what can be a blurry line between settlor and fiduciary roles. While this brief only applies to the HP case, courts will hopefully look to it for direction in similar cases and come to the same conclusion as the DOL.
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