Health Care System Settles Forfeiture Case for $42.7M

Health care system Providence Health & Services agreed to pay $42.7 million to settle a dispute claiming it mismanaged its Providence Health & Services 401(k) Savings Plan by not using forfeited funds to reduce administrative expenses.

As part of the settlement in Halter v. Providence Health & Services et al., heard in the U.S. District Court for the Western District of Washington, more than $21 million currently held in the plan’s forfeiture accounts will be distributed to approximately 202,000 plan participants. In addition, Renton, Washington-based Providence will cover all recordkeeping and plan expenses for the 2026 through 2028 plan years, an amount estimated in court documents to total $15.3 million over three years.

Providence, a not-for-profit Catholic health care system operating in seven western states, will also pay $6 million to establish a fund for attorney fees and other settlement-related costs.

According to court filings, plaintiffs’ lawyers are requesting 14% of the total settlement value.

The complaint accused Providence of a breach of fiduciary duty under the Employee Retirement Income Security Act for failing to properly use forfeiture funds as outlined in the plan documents. As cited in the original complaint, Providence’s Form 5500 stated that all amounts forfeited under the terms of the plan, whether temporarily or permanently, would be credited to a forfeiture account to be used in the order of:

• Paying down plan expenses not covered by Providence, as permitted by applicable Department of Labor regulations and guidance;
• If any funds remain afterwards, to restore accounts of lost payees; and
• If any funds remain after Steps 1 and 2, to offset future employer contributions to the plan.

Since 2024, approximately 67 forfeiture cases have been filed against plan sponsors, according to Encore Fiduciary, but few lead to settlements.

The Department of Labor has taken several steps to outline the federal government’s support for employers to use retirement plan forfeitures to offset future contributions or pay down plan expenses, as permitted by plan documents.

Creighton & Rose P.C., Geist Law Group LLC, the Sharman Law Firm LLC and Terrell Marshall Law Group PLLC represented the plaintiffs, while Morgan Lewis & Bockius LLP represented Providence.

A Providence spokesperson said the parties agreed not to comment on the settlement as part of the agreement, but added that “we remain confident in the integrity and compliance of our retirement plans and in our continued commitment to supporting the long-term financial wellbeing of our caregivers.”