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.
