HP Inc. is accused of improperly using funds set aside for retired workers.
of lawsuit [PDF]The lawsuit, filed in federal court in Northern California on behalf of plaintiff Paul Hutchins, alleges that HP promised to contribute the forfeited funds, which the tech giant promised to contribute to employees’ 401(k) pots, but that the employees were not entitled to. He claims he received unclaimed funds because he left the company before the vesting period. Rather than keep the cash in employee retirement plans, they used the money to benefit themselves.
In the United States, it is still relatively common for employers, especially large employers, to allocate a portion of the amount employees contribute from their paychecks to 401(k) retirement accounts.
As a defined contribution retirement plan, the HP 401(k) Plan provides a full match of up to 4 percent of an employee’s eligible income each pay period. Therefore, an employee earning $100,000 a year who chooses to save $4,000 a year would receive an additional $4,000 from HP.
However, these matching funds will not be paid in full by HP until after the vesting period of three years. The case centers on what happens to undistributed funds forfeited by employees who left the company before that deadline.
Under the Employee Retirement Income Security Act of 1974 (ERISA), funds allocated to a qualified retirement plan can be used to provide benefits to plan participants and pay administrative expenses. The issue posed by the plaintiffs, which others say has long been settled, is whether companies can use forfeited funds to cover outstanding corporate obligations to employees.
The complaint argues that such funds cannot be used for the employer’s benefit, citing ERISA’s “anti-insurance” provisions. The law states that “the assets of a plan shall never inure to the benefit of any employer, shall provide benefits to the plan participants and their beneficiaries, and shall cover the reasonable costs of operating the plan.” shall be held solely for the purpose of
In other words, if a company sets aside funds for an employee’s retirement plan, the funds cannot be used to pay current corporate debt.
Over the past several years, HP has used millions of dollars in forfeited funds to cover donations that would otherwise have gone to employees, according to the suit. And in doing so, it allegedly breached its fiduciary duty to its employees.
Two other lawsuits have been filed in recent months – Dimow vs. Thermo Fisher Scientific and Rodriguez vs. Intuit – making similar claims about companies reclaiming forfeited severance pay for their own benefit. However, legal experts express skepticism about the plaintiffs’ interpretation of the law.
Last month’s groom legal group I have written“This allegation is surprising given that the use of forfeiture to offset employer contributions is well-established and widespread. In fact, this long-standing practice has been is expressly permitted under the Act and consistent with Department of Labor guidance.”
The use of forfeiture to offset employer contributions is well established and widespread
In March, the I.R.S. Proposal for making rules To clarify how the forfeited funds will be used. The language used there supports the use of such funds “to reduce employer contributions under the plan.”
said Brian Pinheiro, practice leader in Ballard Spahr’s employee benefits and executive compensation group. register The IRS’s rulemaking concerns how long funds can be held in forfeiture accounts before being used, and employers’ use of forfeited funds has long been permitted, he said.
“For decades, guidance from the IRS has been that forfeiture accounts, which are accounts that hold assets not allocated to any individual, use that money to pay for plan costs and reduce future employer contributions. , and could be used for reallocation among plan participants,” he said.
Mr. Pinheiro said it was unlikely that the court would agree with the plaintiffs’ interpretation. “If these claims had merit, it would change the way most programs in this country operate,” he said.
HP and the plaintiff’s attorney, Hayes Paulenko, did not respond to requests for comment. ®
