Home Depot has a growing list of companies facing class actions over their use of forfeited funds within their 401(k) plans.
In a lawsuit filed on August 26, 2024, in the United States District Court for the Northern District of Georgia, plaintiffs alleged that the company fell short of fulfilling its fiduciary obligations within its employee retirement plan, resulting in significant financial losses for plan participants.
Guadalupe Cano, a participant in the Home Depot FutureBuilder Plan who initiated the action, claimed that that Home Depot, along with its administrative committee, breached their fiduciary duties under ERISA by using forfeited funds within the retirement plan to reduce the company’s own contributions instead of defraying the plan's administrative expenses.
"A participant [in Home Depot's retirement plan] is cliff vested 100% in the Company’s matching contributions after three years of vesting service," the complaint explained. "When a participant has the requisite number of breaks in service prior to full vesting of the Company’s contributions, the unvested contributions are forfeited."
According to the complaint, the company and the administrative committee overseeing the plan used their discretionary authority and control over the forfeited funds to benefit themselves at the expense of plan participants, who were forced to incur deductions from their individual accounts to pay for costs that should have been covered by the forfeited funds.
“Instead of acting solely in the interest of Plan participants by utilizing forfeited funds... Defendants used these Plan assets for the purpose of reducing its own contributions,” the filing read.
Legal experts have suggested companies administering employee retirement plans could sidestep this type of litigation by getting rid of vesting schedules altogether, or removing discretionary grey areas in plan documents that let them choose between offsetting plan contributions or reducing participant expenses.
The complaint against home depot outlines how over a five-year period starting 2018, Home Depot allegedly reduced its contributions by approximately $25.7 million, reallocating forfeited funds meant for administrative costs to cover its obligations. In 2021 alone, Home Depot’s contributions were reportedly reduced by $7.3 million, while none of the forfeited funds used to offset the administrative fees, which included $800,000 paid to The Northern Trust Company.
The lawsuit argues that Home Depot and its retirement plan directors violated ERISA’s anti-inurement provision, which mandates that plan assets must be used exclusively for the benefit of participants and beneficiaries.
It also maintains that the plaintiffs' use of forfeited funds to defray employer contributions, which saved the company millions of dollars, should count as prohibited transactions under ERISA as they "constituted a direct or indirect exchange of existing Plan assets for future employer contributions and/or a use of Plan assets by or for the benefit of a party in interest."
Cano is seeking a range of remedies, including the recovery of all losse"s to the plan, disgorgement of profits made by Home Depot from these actions, and the removal of fiduciaries who breached their duties. The lawsuit aims to certify a class of all Home Depot FutureBuilder Plan participants and beneficiaries from August 26, 2018, to the present.
The action against Home Depot comes on the heels of another proposed class action against Siemens, which alleged the German multinational cost participants in its nearly $9 billion 401(k) plan in the US by using forfeited assets to offset its own future contributions.
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