ERISA Litigation: The Forfeiture Era?

Apr 30, 2026

To date, there have been about 70 ERISA lawsuits alleging that retirement plan fiduciaries erred in using employer contributions that had been forfeited to offset the cost of future contributions, rather than to reduce plan expenses. Though most of the forfeiture allegations have ultimately been dismissed, the disruption and need for defense remains worrisome for plan fiduciaries.

Dismissed But Try Again…

A pile up of dismissals has not deterred a hungry plaintiffs bar from persisting with forfeiture allegations against retirement plan fiduciaries, as Nevin Adams points out at the National Association for Plan Advisors:

The recent forfeiture cases have turned a once-operational plan feature into a fiduciary battleground. Plaintiffs continue to argue that using forfeitures to reduce employer contributions benefit the employer at participants’ expense. Defendants continue to respond that the plan documents permit the practice, that Treasury and plan-administration norms have long recognized it, and that ERISA does not mandate the plaintiffs’ preferred allocation. A stance, it’s worth noting, supported by the Department of Labor in (to date) four separate such lawsuits….And yet they continue.

Given the swirl of copycat lawsuits that followed plaintiff wins in the previous storm of ERISA allegations over plan fees and investments, lots of eyes and ears remain alert for the outcomes of forfeiture litigation. Defense attorneys have encouraged plan sponsors to take precautions. For example, Carol Buckmann, of Cohen & Buckmann advises: “The Department of Labor has never objected to the longstanding IRS position on plan forfeitures, but it is important that plan sponsors authorize the use of forfeitures in their plan’s language.” Groom Law Group also underscores that the clarity of the plan document–and adherence to it–paves the way for strong defense.

Risk Management Strategies

As the forfeiture cases illustrate, you don’t have to have done something “wrong” to get sued. Indeed, Eric Dyson reminds us: “There is nothing a plan sponsor can do to prevent a lawsuit from being filed. Plaintiffs’ firms do not need proof of wrongdoing. They need public data and a plausible theory.”

With plaintiff attorneys continuing to try out theories alleging that the use of forfeitures to offset employer contributions are breaches of the fiduciary standards of prudence and loyalty under the high bar of ERISA, it’s important for plan sponsors to step up their risk management strategies. For example, It’s helpful to understand that traditional business insurance, like general liability insurance, typically does not cover lawsuits related to the retirement plan. Nor does the Department of Labor’s required ERISA Fidelity Bond, which protects the plan from acts of fraud or theft.

In the event of an ERISA lawsuit, defense is an out of pocket expense for plan sponsors, and costs add up quickly, averaging $600—per hour. To ensure all retirement plan sponsors have protection, Colonial Surety Company offers an affordable Fiduciary+Cyber Liability Package that can be added right onto the required ERISA Bond.

Don’t wait for a participant complaint or a creative plaintiff attorney to allege you’ve made mistakes and accuse you of a fiduciary breach. Secure your business, your plan, and your personal assets with Colonial Surety Company’s unique package today, so you’ll be armed with:

Fiduciary Liability Insurance: Provides up to $1,000,000 in coverage for defense and penalties in the event of allegations.
Cyber Liability Insurance: Includes $50,000 of coverage to address the DOL’s strict standards for response and notification services following cybersecurity incidents. (Colonial Surety Company’s Cyber Liability Insurance explicitly covers both the retirement plan and this business.)

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