A United States district judge has sided with Trader Joe’s in a high-profile ERISA dispute, concluding that the retailer’s practice of applying forfeited retirement-plan contributions against its own forthcoming employer contributions did not breach federal employee-benefits statutes. The lawsuit, identified as Stephen et al. v. Trader Joe’s Company et al., was filed for more than 40,000 participants and questioned multiple elements of the company’s administration of the employee retirement plan.
The central forfeiture dispute concerned contributions that employees lost when they left the company before obtaining full rights to them. The company applied these forfeited sums to lower its future plan contributions. Plaintiffs claimed this practice should have reduced participant fees instead, accusing Trader Joe’s of violating fiduciary responsibilities under ERISA, the Employee Retirement Income Security Act.
Forfeiture Claims
Judge William G. Young rejected the plaintiffs’ argument during a six-day bench trial, finding that the forfeited money went back into the retirement plan and continued to benefit plan participants rather than being improperly diverted for Trader Joe’s own use. This decision carries weight as similar forfeiture claims have been filed against dozens of major US employers, including Amazon, Wells Fargo, JPMorgan Chase and Northrop Grumman.
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The Trader Joe’s case was the first of a recent wave of roughly 100 such lawsuits to reach trial. These cases test whether an employer can breach ERISA fiduciary duties when plan documents permit forfeited contributions to be used to reduce future employer contributions. While the Trader Joe’s ruling rejects this theory, it is specific to the facts and plan structure presented in the Massachusetts federal court.
Recordkeeping Fees
Trader Joe’s did not, however, prevail on every part of the lawsuit. Young found that the company failed to take adequate steps to minimise recordkeeping fees paid by participants. On September 28, the court awarded roughly $1.2 million in damages and interest, significantly less than the $9 million plaintiffs sought.
The decision could therefore become an important reference point in the growing number of lawsuits challenging corporate use of forfeited 401(k) contributions. It does not resolve those other cases, which may involve different plan language, fiduciary processes and factual circumstances.
