The DOL’s Stance on 401(k) Forfeitures & Fiduciary Duties

Matt Arey, Esq. – Retirement Advisor, Partner*

August 2025

A development has emerged from the Ninth Circuit Court of Appeals that could reshape how fiduciaries and plan sponsors interpret the use of forfeitures in 401(k) plans. The Department of Labor (DOL) has filed an amicus brief in the case of Hutchins v. HP Inc.,¹ offering its position on a matter that has sparked over 50 lawsuits this year.

Background of the Case

The plaintiff, Paul Hutchins, alleged that HP Inc. and its Plan Committee breached fiduciary duties by using forfeited employer contributions—funds left behind when employees departed before vesting—to satisfy HP’s matching obligations. The District Court dismissed the case with prejudice, stating that even if the allegations were true, they failed to establish a legal claim. Hutchins appealed the decision to the Ninth Circuit, which could set binding precedent in that jurisdiction and influence other circuits, including our own First Circuit.

DOL’s Position: A Policy Signal

In its July 9th Amicus Brief, the DOL sided with the District Court dismissal of the case with prejudice, asserting that the use of forfeitures to offset employer contributions does not, in itself, constitute a fiduciary breach under ERISA.² This marks the first time the DOL has formally clarified its stance on this issue. While an amicus brief is not regulatory law, it serves as a strong policy indicator.³

The DOL emphasized the distinction between fiduciary responsibilities and “settlor” functions—decisions related to plan design and funding. According to the brief, funding a plan is a settlor function, and employers retain discretion in how they cover plan expenses or provide contributions. The brief also referenced IRS guidance that permits the use of forfeitures to offset future contributions or pay plan expenses, provided the plan documents allow it.

Implications for Fiduciaries and Plan Sponsors

This case and the DOL’s brief offer several key takeaways:

Fiduciary Prudence: The DOL suggested that the HP Plan Committee’s decision to allocate forfeitures toward matching contributions was permissible and aligned with participants’ interests, ensuring timely delivery of promised benefits, and was not without more, itself a breach of fiduciary duty.⁴
Litigation Risk Management: Recognizing that the company and the trust are two separate entities, the brief suggests that fiduciaries may reasonably use forfeitures to avoid potential litigation between the company and the trust. If forfeitures are not used to offset contributions, the company might be compelled to increase its funding, potentially leading to disputes between both entities.
Policy Direction: Legal experts have called the DOL’s brief “significant,” noting that it could influence future rulings in favor of plan sponsors.⁵

What’s Next?

While the Ninth Circuit’s ruling is pending, the DOL’s position may already be shaping fiduciary behavior and litigation strategy. This development reinforces the importance of reviewing plan documents and understanding the interplay between fiduciary and settlor functions.

As always, please reach out to your Lebel & Harriman Retirement Advisors Team with any questions!

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*Although Matt is licensed to practice law, this article is not legal advice. Individuals should seek independent legal advice to assist them with their specific set of facts and circumstances.

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