UnitedHealth Group is the latest big-name employer to get hit with a class action lawsuit over how it handles 401(k) forfeitures. The case, Kotalik et al. v. UnitedHealth Group Inc., accuses the company and its plan fiduciaries of violating ERISA by using more than $19 million in forfeited funds to offset employer contributions—without applying any of it toward plan expenses.
The plaintiffs, representing over 250,000 participants in a $22 billion plan, claim this cost-cutting move shortchanged participants by more than $25 million in compounded value. The lawsuit alleges five ERISA violations, including breaches of loyalty, prudence, and failure to monitor fiduciaries.
This isn’t UnitedHealth’s first brush with ERISA trouble—they recently settled a separate case for $69 million over mismanaged target-date fund investments.
Here’s the lesson: Forfeitures aren’t free money. They’re plan assets and must be handled according to the plan document and ERISA’s exclusive benefit rule. If you’re a plan sponsor, now’s the time to review your forfeiture practices—or risk being next in the litigation spotlight.
