North Carolina federal district court denies defendant fiduciary’s motion to dismiss in forfeiture case

On August 12, 2025, the United States District Court for the Western District of North Carolina denied defendant fiduciary’s motion to dismiss in Becerra v. Bank of America Corporation, et al. This is another “allocation of forfeitures” case in which, bucking the recent trend, the court sided with the plaintiff, finding that a claim that the use of committee discretion to allocate forfeitures to reduce employer contributions rather than to pay plan expenses violated ERISA fiduciary rules.

In this article we provide a brief note on the court’s decision.

Background

Becerra v. Bank of America is one of a series of cases, brought as class actions on behalf of 401(k) plan participants, challenging – as a violation of ERISA’s fiduciary rules – committee decisions to allocate forfeitures to reduce sponsor contributions, rather than to increase participant benefits.

These cases generally involve a similar set of facts:

• A plan document that gives someone – the plan’s administrator, or the sponsor, or a plan committee – discretion to decide whether to allocate forfeitures for the benefit of the sponsor (generally by using forfeitures to reduce company contributions) or for the benefit of participants (in Becerra v. Bank of America, by using forfeitures to pay administrative expenses that would otherwise be paid out of participant accounts).

• A decision by that person (administrator/sponsor/plan committee) to use forfeitures to reduce employer contributions.

In these circumstances, plaintiffs claim, the person making that decision ((administrator/sponsor/plan committee) (1) was acting as an ERISA fiduciary and not as a “settlor” (see the sidebar below) and (2) violated ERISA’s fiduciary duties of loyalty and prudence, its anti-inurement provision, and its prohibited transaction provisions.

The terms of the plan document

Most of these cases turn on the terms of the plan document. In this case, the court summarized:

[T]he Plan mandates how … “forfeitures” shall be used. First, forfeitures must be reallocated to restore prior forfeitures for any employees who returned to BOA within a specified period. … Second, any remaining forfeitures “shall be a source of any type of Participating Employer contributions for the Plan Year, including without limitation safe harbor Matching Contributions and QNECs [qualified nonelective contributions], or shall be used to pay reasonable expenses of the Plan, as determined by the Committee in its sole discretion.” … The Plan also describes what must be done with trust assets, outlining that they must be used for the “benefit of Participants and their Beneficiaries” and “reasonable expenses of administering the Plan” and that they must not be used for or returned to the ”Participating Employer[]” or for any other purpose prior to the satisfaction of all liabilities.

The arguments of the parties

As in other fiduciary cases, defendant fiduciaries, in support of their motion to dismiss, argued that “how [the plan is to] be funded and whether to make contributions” are settlor functions and that (therefore) the plan committee, in deciding to use forfeitures to reduce employer contributions, was not acting as a fiduciary. They also argued that “’numerous courts’ have dismissed similar claims even when fiduciaries have a choice over how to use forfeitures because it is not disloyal nor imprudent to fail to maximize pecuniary benefits.” (Citing Hutchins v. HP Inc.)

Plaintiff countered the committee had used its (plan-authorized) discretion in using forfeitures to reduce employer (rather than participant) costs and that other courts have found “similar actions to be a breach of fiduciary duty because [they] ‘put the employer’s interests above the interests of the Plan participants.’” (Citing Perez-Cruet v. Qualcomm Inc.)

The court’s decision

In siding with plaintiff and denying defendants’ motion, the court provided no analysis, simply concluding:

The Court will not dismiss Plaintiff’s claim for breach of fiduciary duty. The claims and arguments made by both parties involve questions about how to interpret the Plan, and courts have come to different conclusions as to when there is a fiduciary duty under ERISA and what constitutes a breach. At this stage, Plaintiff has stated sufficient facts to support the claim that Defendants were exercising discretion as fiduciaries. Moreover, Plaintiff has sufficiently stated a claim that Defendants breached their fiduciary duties by using Plan assets to lower new employer contributions.

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As we discussed in our article Same facts, different results – two courts come to different conclusions in forfeiture litigation, courts are looking at the same facts – and hearing the same arguments – and coming to different decisions. It’s fair to say that most courts are siding with fiduciary defendants, but some – like this court and the one in Perez-Cruet v. Qualcomm Inc. – are not.

As a practical matter – given that the decisions in these cases very much depend on plan language and on whether the plan committee is given discretion with respect to the allocation of forfeitures – sponsors will want to review with counsel their 401(k) plan documents and (where necessary) change them where appropriate.

We will continue to follow this issue.