New and ongoing litigation regarding plan sponsors’ use of forfeiture provisions under the Employee Retirement Income Security Act mean plan sponsors should carefully review the forfeiture provisions of their defined contribution plans, an ERISA attorney says.

Michael Schloss, an attorney with the Wagner Law Group, says the use of forfeitures is “built into the structure of these types of plans.”

In a legal memo from his firm this week, Schloss also wrote that “consideration should be given to whether fiduciary decisions related to losses could be viewed as relieving the employer of its obligation to the plan and imposing additional costs on participants, and whether steps should be taken now that could mitigate the risk of future litigation.”

Wagner’s warning came just days after a new breach of fiduciary duty lawsuit was filed against retailer Nordstrom Inc., citing the use of forfeitures, the cost of a managed account service and excessive fees for bookkeeping, and reopened an earlier breach of fiduciary duty case against HP Inc. that was initially dismissed last month.

The new case, Curtis McWashington et al. v. Nordstrom Inc. et al., was filed on August 12 in the U.S. District Court for the Western District of Washington. The plaintiffs are seeking a class action lawsuit.

The plaintiffs, represented by attorneys from the firms of Keller Rohrback LLP, Walcheske & Luzi LLC and Schneider Wallace Cottrell Konecky LLP, allege that the retailer, its board of directors and the Nordstrom 401(k) plan’s pension committee “failed to fulfill their fiduciary duties to prudently and diligently ensure that the plan’s overall accounting and other administrative expenses were reasonable and not excessive, and engaged in self-dealing with a view to forfeiting plan benefits in violation of ERISA’s prohibited fiduciary transactions rules.”

The Nordstrom plan had 11,352 participants and assets of $3.9 billion at the end of 2023, according to the plan’s 2023 Form 5500.

The lawsuit against HP is an amended version of the dismissed lawsuit. The new lawsuit was filed July 17 by plaintiff Paul Hutchins, representing a class of participants and beneficiaries on behalf of the HP Inc. 401(k) plan, in the U.S. District Court for the Northern District of California. The court gave HP until Friday to respond and scheduled further hearings on the company’s motion to dismiss.

Hutchins is represented by the law firm of Hayes Pawlenko LLP.

In an interview with PLANSPONSOR, Schloss explained that the numerous pending collection actions against Nordstrom and other employers, including Bank of America Corp., Intuit Inc. and Qualcomm Inc., are due to IRS rules governing the plans qualifying for preferential tax status under ERISA, which include permissible uses of collected amounts.

While he says the various federal courts hearing similar ERISA cases involving asset forfeitures will have to clarify how those funds align with the fiduciary duties set out in Title I of ERISA, he believes that ultimately “can be resolved in the plan documents.”

Haffner Law PC is representing the plaintiffs in the BofA lawsuit, and Hayes Pawlenko is leading the trial in the lawsuits against Intuit and Qualcomm.