Forfeiture litigation: California district court dismisses plaintiff’s ERISA fiduciary/forfeiture claim with prejudice

On June 13, 2025, United States District Court for the Central District of California dismissed plaintiff’s claim in Daniel J. Wright v. JPMorgan Chase & Co et al., with prejudice. This was another in the line of ERISA fiduciary/forfeiture cases, in which plaintiff alleged that plan fiduciaries violated ERISA’s fiduciary rules by using plan forfeitures to reduce employer contributions rather than using them to reduce (otherwise participant-paid) plan expenses or allocating them to participant accounts.

In this note we briefly review the case.

Background

These cases typically (although not always) involve plan language that gives the fiduciary discretion either (1) to use them to pay plan expenses that would otherwise be paid out of plan participant accounts or (2) to use plan forfeitures to reduce future employer contributions.

The court in this case described the relevant plan language as follows:

Plan expenses are paid from assets in the Plan and charged to participants’ accounts unless [the sponsor] decides otherwise.

The Plan directs that forfeited amounts must be used to either (1) “reduce future contributions of the Participating Company” or (2) pay “such Participating Company’s share of Plan expenses not paid directly by the Plan”; however, “if no future contributions are anticipated to be made by such Participating Company,” forfeitures must be used to “reduce future contributions of the Bank or the Bank’s share of Plan expenses not paid directly by the Plan.”

Court’s first holding – plan language does not allow the use of forfeitures to reduce plan/participant expenses

The court held that this language “does not in fact allow Defendants to use forfeited funds to pay participants’ share of administrative expenses.” The language (quoted above) only allows using forfeitures to reduce the “Bank’s share” of expenses – not the participant’s share.

Thus, “[a]s Plaintiff points to no provision of the Plan authorizing Defendants to use forfeited amounts to pay participants’ share of Plan expenses, the Court concludes that the Plan in fact precludes Defendants from doing so. This renders Plaintiff’s theory of breach of fiduciary duty unviable.”

Court’s second holding – even if the plan did permit using forfeitures to reduce participant expenses, plan fiduciaries are under no obligation to do so

Plaintiff’s argument is, in effect, that where the plan gives fiduciaries discretion to allocate forfeitures for the plan participants’ benefit (e.g., by using them to reduce participant expenses), under ERISA’ duty of prudence and (especially) duty of loyalty, the fiduciaries are under a legal obligation to do so.

The court found that this theory “contravenes ERISA and decades of settled precedent.” The court explained:

[T]he “import of [Plaintiff’s] allegations is that, if given the option between using forfeited funds to pay administrative costs or to reduce employer contributions, a fiduciary is always required to choose to pay administrative costs.” [Citing Hutchins v. HP Inc. (2024) (emphasis in original).] This theory runs contrary to the Supreme Court’s instruction that the plausibility of allegations of breach of fiduciary duty is a “context specific” inquiry dependent on the particular circumstances at issue. [ Citing Fifth Third Bankcorp v. Dudenhoeffer (2014).] Moreover, this theory ignores that ERISA does not require fiduciaries to “maximize pecuniary benefits” or to “resolve every issue of interpretation in favor plan beneficiaries.”

With respect to this issue, while a number of courts have taken this approach, some have denied motions to dismiss and allowed plaintiffs to proceed on this theory – see our article Same facts, different results – two courts come to different conclusions in forfeiture litigation.

Somewhat unusually, the court dismissed plaintiff’s claim “with prejudice,” denying plaintiff the right to file an amended complaint.

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This case illustrates (among other things) the critical role plan language plays in forfeiture litigation. Sponsors concerned about this issue will want to review their plan document’s forfeiture provision(s) with counsel.

We will continue to follow this issue.