Siemens 401(k) lawsuit latest over forfeited assets

investmentnews.com:

Siemens Corporation is facing a lawsuit over its use of forfeited assets in its nearly $9 billion US 401(k) plan.

The German multinational company was sued Friday in US District Court for the District of New Jersey, with plaintiffs in the proposed class alleging that it broke its fiduciary duty by using “forfeited” assets to offset future contributions rather than to reduce administrative costs for plan participants.

It’s the latest in a string of cases with similar claims against big companies that don’t immediately vest workers in the contributions made by employers. Often, businesses use contributions not only as perk for their 401(k)s but also as an incentive for workers to remain employed there through the vesting period. Contributions made by the company for workers who leave before being fully vested can be used by employers in different ways, but lawyers have noted that 401(k) plan documents should give a clear direction about that rather than giving employers a choice. That could help protect against litigation, and so too could doing away with vesting schedules, making employees immediately eligible for the contributions employers make.

In Siemens’ case, the company’s plan document gave it options on how to use forfeited assets, the plaintiffs said in the complaint.

“The first option – using forfeitures to reduce the company’s contributions to the plan – is always in Siemens’ best interest, because that option lowers the company’s contribution costs. However, that option might also be in the participants’ best interest if there is a risk that Siemens would default on its contribution obligation to the plan,” the complaint read. “Absent a risk that Siemens would default on its contribution obligation to the