District Court Allows 401(k) Forfeiture Case to Go to Trial
The district judge denied a motion to dismiss claims that Illinois Tool Works and its plan fiduciaries had breached their duties under ERISA.
A federal district court allowed key parts of a 401(k) plan forfeiture complaint against Illinois Tool Works Inc. to move forward, ruling that former and current employees plausibly alleged the company misused retirement plan funds in violation of the Employee Retirement Income Security Act.
In a Monday ruling, U.S. District Judge Sunil Harjani, presiding in U.S. District Court for the Northern District of Illinois, denied most of Illinois Tool Works’ motion to dismiss claims that the company and its plan fiduciaries had breached their duties under ERISA.
The case was brought in 2022 by participants in Illinois Tool Works’ defined contribution retirement plan, alleging the company improperly used millions of dollars in forfeited, unvested retirement benefits to reduce its own required contributions rather than to pay plan administrative expenses that are otherwise charged to employees. According to the plaintiffs, that practice increased costs borne by participants and reduced their retirement savings.
Harjani found that the plaintiffs adequately alleged that Illinois Tool Works, its board of directors and the plan’s investment committee were acting as fiduciaries when they decided how to allocate forfeited plan assets. The judge rejected the company’s argument that those decisions were purely “settlor” functions beyond ERISA’s fiduciary standards, concluding that the plan language plausibly granted discretion over how forfeitures could be used.
The Department of Labor has recently weighed in on four occasions that forfeiture decisions are settlor functions, not fiduciary functions. District courts have dismissed many forfeiture complaints, while some have allowed cases to proceed.
Harjani wrote that at the current stage of the proceedings, the plaintiffs sufficiently alleged that the defendants exercised that discretion “to benefit the company rather than the plan’s participants and beneficiaries,” a potential violation of ERISA’s strict duty of loyalty and its prohibition on plan assets inuring to an employer’s benefit.
The ruling allowed claims based on forfeiture allocations dating back to February 21, 2019, to proceed, but dismissed earlier claims as time-barred under ERISA’s six-year statute of limitations. The court also dismissed, with prejudice, claims that the investment committee was liable as a co-fiduciary for breaches by the company or board, finding the allegations too conclusory.
However, Harjani permitted claims for breach of fiduciary duty; violation of ERISA’s anti-inurement provision; and failure to monitor other fiduciaries to continue against Illinois Tool Works and its board.
The ITW Savings and Investment Plan had nearly $4.2 billion in assets and more than 27,500 plan participants at the end of 2024, according to its latest Form 5500 filing.
Capozzi Adler P.C. and Shook, Hardy & Bacon LLP represented the plaintiffs, while Mayer Brown LLP represented Illinois Tool Works.
Illinois Tool Works did not immediately respond to a request for comment.