Washington — The ERISA Industry Committee (ERIC) and coalition allies filed an amicus brief with the U.S. Court of Appeals for the Fourth Circuit, supporting Northrop Grumman Corporation in Garner v. Northrop Grumman Corp. The brief urges the court to affirm a district court ruling that Northrop Grumman did not violate its fiduciary duties by using forfeited 401(k) contributions to provide contributions to other participants.
When an employee leaves a job before their employer’s 401(k) contributions vest, the unvested portion is forfeited and stays in the plan. Federal law bars refunding it to the employer, but has long let employers choose, within the plan’s terms, whether to use it for administrative costs, benefits for returning employees, or future employer contributions. Northrop Grumman’s plan gives it that choice, and the company used forfeitures to offset its future contributions. Plaintiffs claim this decision violated Northrop Grumman’s duty of loyalty, even though the plan expressly allows it. The district court disagreed and ruled for Northrop Grumman.
“For more than 60 years, the Treasury Department has said it’s permissible for employers to use these forfeited funds to reduce what the company otherwise owes the plan,” said Doug Hinson, Executive Director of the ERIC Legal Center. “Northrop Grumman’s plan spelled out exactly how forfeitures could be used, and the company followed it to the letter. Plaintiffs want the court to say that isn’t good enough, that Northrop Grumman owed workers something extra the plan never promised. ERISA doesn’t require that.”
The brief argues that Congress and the Treasury Department have consistently recognized this practice as lawful for decades, and that ERISA’s fiduciary provisions should not be read to prohibit something federal tax law expressly permits. It also explains that ERISA does not require employers to contribute more to a plan, or provide more generous benefits, than what they have promised in the plan document. Most courts around the country that have reviewed similar lawsuits have reached the same conclusion.
Read the full brief here.