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A Massachusetts federal judge has trimmed — but not tossed — a closely watched benefits case accusing dialysis giant Fresenius of misusing forfeited retirement funds, allowing key claims in the Fresenius 401(k) Forfeiture Suit to move forward.

U.S. District Judge William G. Young on Monday dismissed certain allegations under the Employee Retirement Income Security Act but ruled that workers had sufficiently pleaded that the company’s handling of forfeited 401(k) funds may have run counter to their interests.

Some Claims Dismissed, Others Advance

The lawsuit targets National Medical Care Inc., which does business as Fresenius Medical Care North America. Judge Young dismissed claims for breach of fiduciary duty and prohibited transactions under ERISA.

However, he allowed claims for breach of prudence and breach of loyalty to proceed, finding the workers had offered enough factual detail at the motion-to-dismiss stage.

“In the absence of binding authority, the court must honor the allegations of the complaint at the motion to dismiss stage, drawing all reasonable inferences in favor of the plan participants,” the judge wrote.

The ruling keeps alive the core question: whether Fresenius’ use of forfeited retirement funds favored the company’s balance sheet over employees’ nest eggs.

Dispute Over Forfeited Funds

The workers filed suit in June, alleging that Fresenius violated its fiduciary duties by using forfeited 401(k) funds — contributions left behind when employees depart before employer matches fully vest — to offset its own future matching contribution obligations.

Instead, the plaintiffs argue, the company should have applied those forfeited funds to cover plan expenses that were otherwise borne by employees, thereby reducing charges that diminished their retirement savings.

Judge Young pointed to the language of the retirement plan itself, which allows forfeited funds to first be applied to matching contributions, with any remaining balance used to pay plan expenses. On that basis, he rejected claims that Fresenius breached its fiduciary duties by failing to adhere to the plan’s written terms.

But compliance with plan language, the judge noted, does not automatically equate to compliance with ERISA.

Prudence and Loyalty at Issue

Fresenius contended that it received no improper windfall from applying forfeitures toward employer contributions, because those funds had already been earmarked for the plan but were abandoned when employees left before vesting.

The court acknowledged that many courts reviewing similar cases have dismissed such claims, reasoning that employers are not required to maximize financial outcomes for plan participants but must ensure promised benefits are delivered.

Still, Judge Young found the workers’ arguments persuasive at this stage. The plaintiffs alleged there was no evidence Fresenius faced financial difficulty in meeting its contribution obligations and that using forfeited funds to cover plan expenses could have reduced costs charged to participants’ accounts.

They also argued there was no indication Fresenius investigated whether directing forfeitures toward contribution obligations — rather than expenses — represented the most prudent course of action.

Those allegations, the judge concluded, were sufficient for the breach of prudence and breach of loyalty claims to proceed.