A federal judge has dismissed a class action complaint accusing Kaiser Foundation Health Plan and its affiliates of mishandling forfeited assets in its employee 401(k) plan in an alleged violation of ERISA.

In Stacey M. Madrigal v. Kaiser Foundation Health Plan Inc., et al., U.S. District Judge Mónica Ramírez Almadani, presiding in U.S. District Court for the Central District of California, granted Kaiser’s motion to dismiss all claims brought by former employee Stacey M. Madrigal in a May 2 ruling.

The plaintiff alleged that Kaiser violated the Employee Retirement Income Security Act of 1974 by using forfeited, nonvested plan assets to reduce its own future employer contributions instead of applying them to participants’ accounts or plan expenses. Madrigal argued that this practice effectively harmed participants by diminishing the overall pool of assets available to them.

But the court disagreed, finding Madrigal’s claims legally insufficient under ERISA.

“The fiduciary duty is fulfilled where the fiduciary ensures that participants have received their promised benefits,” Ramírez Almadani wrote, adding that ERISA does not impose a broader duty to maximize participant balances beyond what the plan terms require.

The judge ruled that the Kaiser Permanente Administrative Committee, holding the fiduciary responsibility over the plan assets, did not breach its duties because there was no allegation that participants were denied any benefits promised under the plan.

The court also dismissed claims that the use of forfeited funds violated ERISA’s anti-inurement provision, which bars plan assets from improperly benefiting employers. Ramírez Almadani reasoned that the funds never left the plan and were used to offset funding obligations, so there was no violation.

Madrigal’s claims under ERISA’s prohibited transaction rules also failed, with the court ruling that reallocating forfeitures within a retirement plan does not meet the legal definition of a “transaction” under ERISA.

The Kaiser Permanente 401K Plan, subjected to the litigation, had more than $19.7 billion in assets in 2023. The dismissal gives Madrigal 21 days to file an amended complaint.

Similar Case Law

The decision in the Kaiser case is part of a series of recent lawsuits challenging how employers use participants’ forfeited 401(k) funds.

A district court in Arizona recently dismissed a class action complaint against Knight-Swift Transportation Holdings Inc., rejecting claims that the truck-loading company violated ERISA by using forfeited funds to offset company contributions, rather than to pay down plan expenses.

In November 2024, employers filed a complaint against Capital One, alleging the bank violated its fiduciary duties under ERISA by misusing participant-forfeited funds. Meanwhile, in March, UnitedHealth Group agreed to a $69 million settlement to resolve a class action lawsuit over investment fund selection in its 401(k) Savings Plan.

“The cases haven’t slowed down, but whether the litigation will gain long-term traction will depend on how district courts continue to rule—and, more significantly, whether appellate courts begin to issue precedent in these early test cases,” says Nate Ingraham, a senior managing associate in the employee benefits and executive compensation group at Thompson Hine LLP.

“There’s been some speculation about whether the Department of Labor might weigh in, but so far, they haven’t taken any public position. Going forward, the two most likely sources of clarity are continued case law development and, potentially, future regulatory action.”