The U.S. District Court for the Northern District of California has decided not to dismiss a class action lawsuit against The Clorox Company and the employee benefits committee of The Clorox Company 401(k) Plan. The lawsuit claims that Clorox violated its fiduciary duties under the Employee Retirement Income Security Act (ERISA) by using plan forfeitures to offset its employer non-elective contributions to the plan rather than reducing the administrative costs for plan participants.
Initially, the complaint was dismissed without prejudice; however, the district court later determined that the amended complaint adequately alleged breaches of ERISA’s duties of loyalty and prudence. In its decision, the court noted that the plaintiff’s arguments suggested Clorox was motivated solely by self-interest and failed to engage in a reasoned, impartial decision-making process, as there was no other justification for its actions. The court concluded that the plaintiff had sufficiently stated a claim regarding the duty of loyalty. The court also rejected Clorox’s argument that the language in the plan document permits the allocation of plan forfeitures to offset employer contributions. The court pointed out that Clorox’s argument assumes no fiduciary breach occurred, a matter that remains to be decided. If a breach is established, the court stated, adherence to the plan document would not absolve Clorox of liability.
