JPMorgan Chase is being sued over its use of forfeited 401(k) assets. These assets are employer contributions that workers lose when they leave the company before being fully vested. The lead plaintiff says JPMorgan broke its duty under the Employee Retirement Income Security Act (ERISA).
They claim JPMorgan used the forfeited assets to offset future contributions for other workers. The plaintiff argues this should have been used to reduce expenses for all plan participants. This type of lawsuit has been seen more often in the past year.
A similar case against another company survived a motion to dismiss last year. This was the first time such a lawsuit cleared a big legal hurdle. Daniel Aronowitz, president of Encore Fiduciary, says plan sponsors have been following rules set by the Treasury Department and IRS.
He says these lawsuits were unexpected. “Plan sponsors are doing exactly what the plan document allows,” Aronowitz said. “Some courts are finding that you have a choice – and when you have a choice, that’s a fiduciary function.”
The issue is that plan documents give 401(k) sponsors the choice of how to use forfeited assets.
Lawsuit targets JPMorgan’s 401(k) strategy
This could make them liable. “Something that has been allowed under the law for years is turning into an alleged breach of fiduciary duty,” Aronowitz added.
If these lawsuits succeed, it could lead to many more claims. This would be similar to the spread of lawsuits over 401(k) fees. Experts say plan fiduciaries may need to change plan documents.
They could remove any choice in how forfeited assets are used. They could also consider getting rid of vesting schedules so participants automatically own company contributions. JPMorgan Chase would not comment on the lawsuit.
It was filed in the U.S. District Court in the Central District of California. At the end of 2023, the company’s plan had more than $44 billion in assets. Some people noted that the earlier suit surviving dismissal would likely lead to more lawsuits.
If these cases succeed at trial or reach settlements, it could cause a flood of similar claims across the industry.
