Siemens 401(k) lawsuit latest over forfeited assets

Siemens Corporation is facing a lawsuit over its use of forfeited assets in its nearly $9 billion US 401(k) plan.

The German multinational company was sued Friday in US District Court for the District of New Jersey, with plaintiffs in the proposed class alleging that it broke its fiduciary duty by using “forfeited” assets to offset future contributions rather than to reduce administrative costs for plan participants.

It’s the latest in a string of cases with similar claims against big companies that don’t immediately vest workers in the contributions made by employers. Often, businesses use contributions not only as perk for their 401(k)s but also as an incentive for workers to remain employed there through the vesting period. Contributions made by the company for workers who leave before being fully vested can be used by employers in different ways, but lawyers have noted that 401(k) plan documents should give a clear direction about that rather than giving employers a choice. That could help protect against litigation, and so too could doing away with vesting schedules, making employees immediately eligible for the contributions employers make.

In Siemens’ case, the company’s plan document gave it options on how to use forfeited assets, the plaintiffs said in the complaint.

“The first option – using forfeitures to reduce the company’s contributions to the plan – is always in Siemens’ best interest, because that option lowers the company’s contribution costs. However, that option might also be in the participants’ best interest if there is a risk that Siemens would default on its contribution obligation to the plan,” the complaint read. “Absent a risk that Siemens would default on its contribution obligation to the plan, the second option – using forfeitures to pay plan expenses – is in the best interest of the plan’s participants because that option reduces or eliminates the amounts charged to their individual accounts to cover such expenses.”

The company “failed to undertake any investigation into which option was in the best interest of the plan’s participants,” the complaint stated, listing tens of millions in forfeited assets since 2020 that were not used to offset participants’ expenses.

Siemens did not immediately respond to a request for comment about the lawsuit.

There are currently a dozen or more similar cases that have been filed against plan sponsors, brought by a handful of law firms. Other companies recently named as plaintiffs include Bank of America and Nordstrom.

The steps that employers can take to help avoid such litigation, such as removing vesting schedules, aren’t necessarily in reaction to the increase in lawsuits, said Matthew Eickman, chief legal officer at Fiduciary Law Center. A labor market that overall has become more competitive has encouraged businesses to immediately vest the contributions they provide, he said. And in talks with plan sponsors about what language they want to use regarding the use of forfeited assets, many feel that using those to help offset participants’ expenses is the right thing to do, he said.

“In working with plan sponsors, the plan document is going to become key,” he said, noting that there will likely be a move away from giving plan sponsors discretion about what to do with those assets.

However, one issue is that plan sponsors often use preapproved plan documents, which can give them pause about making amendments – plan record keepers often tell them that doing so kicks the plan out of “preapproved” status, he said.

Bloomberg Law reported Monday on the lawsuit against Siemens.