In a legal clash with stakes as high as a telecom tower, AT&T has moved to toss a lawsuit challenging its use of forfeited 401(k) contributions, asserting in a Friday filing that the Employee Retirement Income Security Act (ERISA) simply doesn't apply to its plan-related actions.

The motion to dismiss, lodged in California federal court, comes in response to a proposed class action from Luis Hernandez, a former or possibly current AT&T employee whose retirement account allegedly suffered when the company reallocated unvested funds instead of using them to benefit participants.

But according to AT&T, the entire case hangs on a misinterpretation of ERISA, claiming that the contested decision was made in its role as a "settlor" — not a fiduciary — thereby placing it outside ERISA’s reach.

Fiduciary or Settlor?

AT&T Argues It’s Playing by the Book — Its Own Book

AT&T’s argument hinges on the distinction between its role as a fiduciary and its authority as a plan sponsor. Under ERISA, only fiduciary actions fall under legal scrutiny. The telecom giant asserts that the use of forfeited funds — those contributions lost by employees who left before vesting — was a settlor function tied to plan design, not plan management.

“Plaintiff is ultimately attacking the plan design decision to permit forfeitures to be applied to employer contributions — but that is a settlor decision, not a fiduciary one,” AT&T’s attorneys wrote.

The company added that its approach fully aligns with the U.S. Treasury Department's guidance, which for decades has allowed plan sponsors to use forfeited funds to reduce future employer contributions or cover administrative costs.

The Anti-Inurement Debate

Plaintiff Leans on ERISA’s “Exclusive Benefit” Clause

Hernandez, represented by Haffner Law PC, frames the issue through a different lens. He cites ERISA’s anti-inurement provision, which mandates that plan assets be used exclusively to benefit participants and defray administrative costs — not to subsidize employers' future financial obligations.

In his complaint, Hernandez alleges AT&T sidestepped this rule by failing to apply forfeited funds in ways that directly benefited employees, such as lowering fees or increasing plan payouts.

While the complaint is somewhat vague on whether Hernandez remains employed by AT&T, its central claim is clear: the company allegedly violated ERISA by reabsorbing employee funds for its own benefit.

Courtroom Trends Not in Plaintiff’s Favor

Similar Suits Against Big Employers Have Been Dismissed

AT&T’s motion points to a growing list of dismissed ERISA lawsuits that hinge on the same legal theory. The company referenced:

• A Northern District of California decision that tossed similar claims against HP just last month

• A Southern District of California ruling dismissing an ERISA suit against Thermo Fisher Scientific in 2023

• Federal court victories for Honeywell, BAE, and Home Depot

These precedents, AT&T argues, demonstrate that courts have consistently rejected the notion that reallocating forfeitures constitutes a fiduciary breach, particularly when those forfeitures remain within the plan.

“Courts have dismissed analogous anti-inurement claims... explaining that 'allocation of forfeitures to reduce the employer's matching contribution does not implicate the anti-inurement provision,'” AT&T wrote, quoting U.S. District Judge Todd W. Robinson from the Thermo Fisher case.

Legal Representation

• Luis Hernandez is represented by Joshua H. Haffner, Alfredo Torrijos, and Vahan Mikayelyan of Haffner Law PC.

• AT&T is represented by Catalina J. Vergara, Meaghan VerGow, Deanna Rice, and William D. Pollak of O'Melveny & Myers LLP.

What’s Next?

While Hernandez’s counsel has not yet commented publicly, all eyes are on the court’s response to AT&T’s argument. If the judge sides with the telecom giant, it could deal another blow to a rising tide of ERISA class actions seeking to reinterpret fiduciary obligations in the modern retirement landscape.

In this legal chess match, the question remains: is AT&T safeguarding a plan or stacking the deck?