Capital One Settles Plan Forfeiture Case

Capital One Financial Corp. reached a settlement in a complaint that alleges it mismanaged its 401(k) plan by using plan forfeitures to reduce contributions, instead of using them to reduce administrative costs.

The parties in Singh et al v. Capital One Financial Corp. et al, filed in November 2024 in U.S. District Court for the Southern District of New York, reached an agreement on September 25 after mediation efforts earlier this month, according to court documents. The plaintiffs have until November 10 to file a motion for preliminary approval. The terms of the settlement were not disclosed in the court documents.

Singh is part of a recent surge of plan forfeiture lawsuits pursued by plaintiffs in the last two years, with mixed outcomes for those seeking redress.

The central issue in nearly all cases is how plan sponsors are permitted to use plan forfeitures. Plaintiffs typically argue that forfeited funds should be allocated to reduce plan expenses. In contrast, the IRS and, more recently, the Department of Labor, assert that if the plan documents permit the use of forfeited funds to offset future employer contributions, then employers are free to utilize them accordingly.

According to the most recent Form 5500 filing of the plan at issue, the Capital One Financial Corp.’s Associate Savings Plan, “excess forfeited balances of terminated participants’ non-vested accounts, after payment of administrative expenses, are used to reduce future company contributions.”

As reported in the Form 5500, the total amount of forfeited non-vested accounts was $11,942,378 as of December 31, 2023, compared with $6,475,033 as of December 31, 2022. Additionally, the forfeitures utilized to reduce company contributions were $7,545,018 in 2023 and $8,549,833 in 2022.

Capital One filed a motion to dismiss in January, but a decision on that motion was stayed in June, because the parties entered mediation.

While most recent forfeiture cases have been either dismissed or allowed to continue, Intuit Inc. settled a forfeiture case in May for $2 million. Some ERISA attorneys have noted that the settlement is less than what prolonged litigation would have cost.

The plaintiffs in the Capital One case are represented by Capozzi Adler P.C and Muhic Law LLC, while the defendants are represented by Morgan, Lewis & Bockius LLP.

Capital One Financial Corp.’s Associate Savings Plan had more than $10 billion in assets with 68,271 plan participants in 2023, according to the Form 5500.