There are plenty of cases out there, arguing that plan sponsors that use forfeitures to reduce employer contributions rather than paying administrative expenses are creating a fiduciary breach and a prohibited transaction.
While most of my clients won’t be subject to any type of litigation, I can see one day when the Department of Labor will opine that it’s impermissible to use forfeitures to reduce employer contributions when participants can pay less in fees if they’re used to offset plan expenses.
So plan sponsors need to be concerned more about saving on plan expenses for their participants than saving a couple of shekels with their employer contributions.
