UnitedHealth 401(k) Plan Forfeits Lawsuit to Continue

A federal judge ruled that participants in UnitedHealth Group’s 401(k) plan may continue to pursue fiduciary breach claims alleging the company improperly used millions of dollars in forfeited retirement contributions to reduce its own funding obligations, rather than to offset plan expenses.

In an opinion issued June 22, U.S. District Judge Eric Tostrud, presiding in U.S. District Court for the District of Minnesota, denied most of UnitedHealth’s motion to dismiss the proposed class action suit, finding that the plaintiffs plausibly alleged the plan suffered an economic injury and that fiduciaries may have breached their duties of prudence and loyalty to participants under the Employee Retirement Income Security Act. The court, however, dismissed claims alleging violations of ERISA’s anti-inurement and prohibited-transaction provisions.

The decision in UnitedHealth ERISA 401(k) Litigation, which combines several plaintiffs’ cases alleging the same breaches against UnitedHealth, marks another significant development in a fast-growing line of ERISA litigation challenging how defined contribution plans allocate forfeited employer contributions. The forfeitures come from plan participants who left the employer and the plan before being fully vested in the employer’s contributions.

While plan documents often permit forfeitures to be used either to reduce future employer contributions or to pay plan administrative expenses, plaintiffs have increasingly argued that fiduciaries must independently determine which option best serves participants’ interests, rather than automatically selecting the approach that benefits the employer.

The Department of Labor under President Donald Trump has made clear, in several amicus brief filings in appellate courts, that it sides with employers in these cases, but that has not prevented some district court victories for plaintiffs.

According to the complaint, UnitedHealth’s plan gave its administrative committee discretion over how to use forfeited employer matching and profit-sharing contributions from participants who left the company before completing two years of service. Between 2019 and 2023, the committee directed approximately $19.3 million in forfeitures toward reducing the company’s future matching and profit-sharing contribution obligations, instead of using the money to pay plan administrative expenses.

The plaintiffs contend that if the forfeitures had instead been applied to plan expenses, participants would not have borne those costs through their accounts while UnitedHealth continued making employer contributions at the same levels. The complaint estimates the challenged decisions reduced plan assets by more than $25.6 million over the five-year period.

UnitedHealth argued the case should be dismissed because the plaintiffs failed to establish the plan suffered a cognizable injury and because the challenged use of forfeitures was expressly authorized by the plan documents and longstanding regulatory guidance.

Tostrud rejected those arguments at the pleading stage. His opinion concluded that the complaint plausibly alleges the plan lost assets through the committee’s repeated allocation decisions and that plaintiffs adequately pleaded claims for breaches of ERISA’s duties of prudence and loyalty, along with a derivative claim that UnitedHealth failed to monitor the committee’s conduct.

Tostrud emphasized that authorization under the plan does not, by itself, resolve whether fiduciaries satisfied ERISA’s standards of conduct. The opinion also found that the plaintiffs plausibly alleged that using forfeitures to reduce employer contributions benefited UnitedHealth, while directing those funds toward plan expenses could have provided greater value to participants.

At the same time, the court dismissed claims asserting the forfeiture decisions violated ERISA’s anti-inurement rule or constituted prohibited transactions, finding the complaint did not plausibly support those theories.

The ruling does not determine whether UnitedHealth violated ERISA. Instead, it allows the central fiduciary breach claims to proceed to discovery, where plaintiffs will seek evidence regarding the committee’s decision-making process and whether it acted solely in participants’ interests when allocating forfeited plan assets.

The UnitedHealth Group 401(k) Savings Plan had 278,507 participants with more than $26.6 billion in assets at the end of 2024, according to its most recent Form 5500 filing.

Cummins & Bonestroom, Walcheske & Luzi LLC, Zimmerman Reed LLP, and Lynch Carpenter, LLP represent the plaintiffs. Dorsey & Whitney LLP represent the defendants.

UnitedHealth did not return a request for comment.