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The U.S. Department of Labor has thrown its weight behind HP Inc. in a closely watched 401(k) forfeiture lawsuit, urging the Ninth Circuit to uphold the dismissal of a proposed class action accusing the tech giant of mishandling retirement funds.

In an amicus brief filed Wednesday, Labor Secretary Lori Chavez-DeRemer told the court that a California federal judge was right to toss the suit in February, siding with HP and rejecting ex-employee Paul Hutchins’ claims that the company’s use of forfeited 401(k) funds violated federal benefits law.

HP Cleared of Fiduciary Breach Claims, Says DOL

The dispute stems from Hutchins’ November 2023 lawsuit on behalf of a proposed class of HP workers, claiming the company improperly used forfeited employer 401(k) contributions to offset future matching obligations — rather than reducing plan-wide fees — and in doing so breached fiduciary duties under the Employee Retirement Income Security Act (ERISA).

But the DOL’s brief called the complaint "bare allegations" and aligned itself with the lower court’s rationale, saying Hutchins failed to state a plausible claim that HP’s actions violated ERISA’s duties of loyalty or prudence.

"For decades, it has been understood that defined contribution plans like HP’s may use forfeited employer contributions to fund future participant benefits, not necessarily to defray administrative costs," the agency wrote.

Funding Trade-Offs and Legal Risks

The DOL further argued that HP’s 401(k) plan explicitly allows for the use of forfeitures to cover matching contributions. Challenging that decision, it warned, could have created funding shortfalls and potentially embroiled the company in protracted legal battles to secure additional contributions from the plan sponsor.

"If the sponsor refused [additional funds], the plan could be left unable to allocate matching contributions as required — triggering its own fiduciary complications," the brief said.

The agency also pushed back on Hutchins' claim that diverting forfeitures from admin costs would automatically result in HP injecting more money into the plan. Instead, any additional funding would need to be requested, introducing legal and financial uncertainty.

Treasury Guidance, Settlor Decisions at Play

While acknowledging HP's plan committee made a fiduciary decision, the DOL emphasized that it was "tightly constrained" by settlor decisions regarding the plan’s structure and the boundaries set by the Treasury Department.

"The use of forfeitures to fund matching contributions is not a red flag," the DOL wrote. "It’s a method expressly recognized by the plan document and Treasury regulations."

The department also nodded to the trial court’s dismissal of prohibited transaction claims, saying further discussion was unnecessary as the lower court and HP had sufficiently addressed the matter.

Legal Teams Weigh In

Though spokespeople for HP, Hutchins, and the DOL did not immediately comment Thursday, the legal battleground is set:

• The DOL is represented by Emily H. Su, Wayne R. Berry, Megan E. Guenther, Thomas F. Garrity, and Emma Goold from the Plan Benefits Security Division.

• Hutchins is represented by Matthew Bryan Hayes and Kye Douglas Pawlenko of Hayes Pawlenko LLP.

• HP Inc. is represented by a team at Morgan Lewis & Bockius LLP, including Deborah Shannon Davidson, Mark Andrew Feller, Matthew Allen Russell, Samuel Block, and Michael E. Kenneally.

The Ninth Circuit now must decide whether the lower court properly recognized that using forfeited contributions as a funding tool — rather than to offset fees — is not, in itself, a breach of fiduciary duty. Until then, the case remains a critical flashpoint in the evolving landscape of 401(k) plan governance and ERISA litigation.