JPMorgan Chase is facing a class-action lawsuit over its use of forfeited 401(k) assets. The lead plaintiff alleges that the firm breached its fiduciary duty under the Employee Retirement Income Security Act (ERISA). The complaint accuses JPMorgan of using forfeited plan assets to offset future contributions for other employees.
The plaintiff argues this should have been used to reduce expenses for all plan participants instead. This legal argument gained momentum last year when a similar case against Qualcomm survived a motion to dismiss. It marked the first time such a lawsuit overcame a major legal hurdle.
Many plan fiduciaries have been surprised by these lawsuits. They have been operating within guidelines set by the Treasury Department and IRS for years.
JPMorgan lawsuit on 401(k) assets
“This was always considered to be kosher under the law,” said Daniel Aronowitz, president of Encore Fiduciary. “Plan sponsors are doing exactly what the plan document allows. Some courts are now finding that you have a choice – and when you have a choice, that’s a fiduciary function.”
Aronowitz pointed out that plan documents granting discretion to the 401(k) sponsor in the use of forfeited assets may be exposing them to liability.
JPMorgan Chase declined to comment on the lawsuit, which was filed in the U.S. District Court in the Central District of California. The company’s plan represented more than $44 billion in assets as of the end of 2023, according to data filed with the Department of Labor. Following the Qualcomm case’s progression, observers speculated that this would likely spur further litigation.
If plaintiffs succeed either at trial or through settlements, it could result in widespread claims, similar to the wave of lawsuits over 401(k) fees. To mitigate these risks, some legal experts suggest that plan fiduciaries draft plan documents in a way that removes discretion in how forfeited assets are used. Another approach could be eliminating vesting schedules, which would result in plan participants automatically receiving full ownership of company contributions.
