Judge Dismisses WPP Marketing Co 401(k) Forfeiture Suit in New York
America ı By Rihem Akkouche
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A New York federal judge has thrown out a proposed class action lawsuit against WPP Group USA Inc., ruling that two former employees failed to prove the marketing giant mishandled 401(k) plan forfeitures in violation of federal benefits law.
In a detailed opinion issued Friday, U.S. District Judge John G. Koeltl sided with WPP Group, finding that the company’s use of forfeited funds to offset employer contribution costs was consistent with the plan’s governing documents and long-standing federal guidance.
The decision dealt a significant blow to former WPP employees Rafael Polanco and Monique Johnson, who had accused the company and its retirement plan committee of breaching fiduciary duties under the Employee Retirement Income Security Act (ERISA).
Court Finds No ERISA Violation in Forfeiture Use
Polanco and Johnson filed their complaint in December, claiming that WPP diverted millions in 401(k) forfeitures — funds left behind when employees left before vesting — for its own benefit rather than redistributing them to plan participants.
However, Judge Koeltl concluded the plan’s terms explicitly allowed the company’s actions.
“By using forfeitures to cover contributions, the defendants neither violated the plan document's terms nor deprived the plaintiffs of any entitlement guaranteed to them by the plan,” the judge wrote.
The court also noted that participants suffered no tangible loss, and referenced a series of similar district court rulings dismissing comparable ERISA challenges from other employers.
Treasury and DOL Guidance Bolster WPP’s Defense
Judge Koeltl cited U.S. Treasury Department regulations and a recent U.S. Department of Labor amicus brief that both support employers using forfeitures to fund contributions — a practice recognized across the retirement plan industry.
“The plaintiffs never square their theory with these congressional and agency sources,” Koeltl added, underscoring that WPP’s conduct was well within permissible boundaries.
Some Claims Dismissed With Leave to Amend
While the judge dismissed the fiduciary duty of loyalty and prohibited transaction claims with prejudice, he granted the plaintiffs a narrow opportunity to amend allegations tied to prudence and failure to monitor, giving them 21 days to file a revised complaint.
The case reflects a growing trend of ERISA forfeiture suits emerging in federal courts — many of which have been dismissed as courts defer to federal guidance allowing employers to reallocate unvested funds.
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