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A California employee is taking his fight against AT&T to a higher stage after a federal court dismissed his proposed class action over alleged mismanagement of employee 401(k) plan forfeitures.

Luis Hernandez filed a notice of appeal Wednesday challenging U.S. District Judge Otis D. Wright II’s order granting AT&T’s motion to dismiss with prejudice under the Employee Retirement Income Security Act (ERISA).

Dismissal Sparks Appeal

Judge Wright ruled that Hernandez’s claims—that AT&T improperly applied forfeitures to reduce employer obligations instead of lowering future participant contributions—did not amount to a breach of ERISA fiduciary duties, including loyalty or prudence.

The court found the complaint also failed to plausibly allege violations of ERISA’s anti-inurement provisions or any prohibited transactions under the statute. In short, the allegations fell short of establishing a legally actionable theory.

Fiduciary Duty Debate

In November, Judge Wright aligned with precedent from other courts, noting that Hernandez’s proposed liability theory would effectively force plan fiduciaries to always allocate forfeitures to administrative costs instead of reducing employer contributions.

“This theory of fiduciary breach would create benefits beyond those promised in the plan,” the judge said, underscoring the tension between employee expectations and legal limits on fiduciary discretion.

Hernandez’s appeal now sets the stage for the Ninth Circuit to weigh in, potentially clarifying the contours of ERISA fiduciary duties and the handling of 401(k) plan forfeitures in cases where administrative and employer obligations intersect.