Employers Should Apply 401(k) Forfeitures to Benefit Employees

Mathew Moldawer
Mathew Moldawer

Qualcomm designed a 401(k) plan for employees that allowed Qualcomm to use forfeitures to reduce employer contributions or apply to plan administrative expenses.  Qualcomm chose the former.

After Qualcomm elected to apply forfeited contributions to reduce employer contributions, a group of plan participants challenged that action in federal court, alleging that Qualcomm had a fiduciary duty to use the forfeited contributions to lower the administrative costs for plan participants.

Qualcomm moved to dismiss the action because it complied with the terms of its 401(k) plan, and the decision to do so was at their discretion.  The California court denied that motion, explaining that Qualcomm had a fiduciary duty that may not permit Qualcomm to put their interests “above the interests of the Plan participants.” 

As the case moves forward, the balance between the duties of an employer as an administrator and a fiduciary will be in play.

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