Washington – The ERISA Industry Committee (ERIC) and the U.S. Chamber of Commerce filed a joint amicus brief with the U.S. Court of Appeals for the Second Circuit in Polanco v. WPP Group USA, Inc., supporting WPP Group USA and the committee that administers its 401(k) plan. The brief urges the court to affirm a district court ruling that dismissed claims alleging the committee breached its duties of loyalty and prudence under the Employee Retirement Income Security Act (ERISA), the federal law governing employer-sponsored retirement plans.
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 expenses, benefits for returning employees, or future employer contributions. WPP’s plan gives its committee that choice, and the committee used most forfeitures to offset the company’s upcoming contributions rather than pay plan expenses. Plaintiffs claim this decision violated the committee’s duties under ERISA, even though the plan and federal regulations expressly allow it. The district court disagreed and dismissed the case.
“For more than 60 years, Treasury has confirmed that employers may use forfeited contributions to reduce what they owe a 401(k) plan,” said Doug Hinson, Executive Director of the ERIC Legal Center. “WPP’s plan spells out that choice in plain terms, and following it is not a breach of any duty ERISA imposes. Second-guessing that choice years later would upend a practice regulators have accepted for generations and expose responsible employers to lawsuits over conduct everyone understood to be lawful.”
The brief argues that Congress and the Treasury Department have long treated this practice as lawful, and that ERISA should not be read to forbid what federal tax law expressly permits. It also explains that ERISA does not require employers to give participants more than a plan promises. Nearly every court that has examined comparable claims in the recent wave of forfeiture lawsuits has reached the same conclusion, because it is the right one.
Read the brief here.