Federal Court in California Grants Dismissal of Thermo Fisher 401(k) Forfeiture Suit

A complaint against biotechnology company Thermo Fisher Scientific Inc. over how it allocates forfeited 401(k) funds was dismissed by U.S. District Judge Todd Robinson in U.S. District Court for the Southern District of California last week.

Because fiduciary provisions of the Employee Retirement Income Security Act did not create a benefit and did not evade either Treasury regulations or “settled rules regarding the use of forfeitures in defined contribution plans,” Robinson concluded that the case’s allegation that Thermo Fisher breached its fiduciary duty was “too broad to be plausible.”

The court granted without prejudice Thermo Fisher’s motion to dismiss the lawsuit. The plaintiff, Konstantina Dimou, is able to file an amended complaint within 30 days.

Dimou, a participant in Thermo Fisher’s 401(k) plan who was represented by law firm Hayes Pawlenko LLP, alleged in Dimou v. Thermo Fisher Scientific Inc. et al. that the employer breached its fiduciary duties by choosing to use forfeited funds to the company’s own benefit and by using these plan assets “solely to reduce future company contributions to the plan.”

The Thermo Fisher Scientific Inc. 401(k) Retirement Plan has more than $7 billion in assets and 56,872 participants, according to its most recent Form 5500 filing.

The original complaint was filed as a class action in September 2023, but in December 2023, Dimou removed her class action allegations and filed an amended complaint, seeking only plan-wide relief in a representative capacity. In January, Thermo Fisher filed its motion to dismiss.

Judge Relies on Northern California’s Hutchins Decision

Robinson’s decision stated that the Department of the Treasury and Congress have “long understood” that forfeitures in defined contribution plans could be either: reallocated to the remaining participants under a nondiscriminatory formula, used to reduce future employer contributions, or used to offset administrative expenses.

In addition, Robinson wrote in the ruling that, generally, decisions concerning the design, establishment or modification of an employee benefit plan are settlor functions, not fiduciary functions, because they do not “implicate program management,” whereas transactions that deal with a pool of assets, like selecting investments, are fiduciary in nature.

Dimou had countered that when a company transfers funds to the plan, the funds become the plan’s assets and that Thermo Fisher was acting as a fiduciary when deciding how the plan’s assets—including forfeitures—were allocated.

Robinson summarized the opinion of U.S. District Judge Beth Labson Freeman in the Northern District of California in Hutchins v. HP Inc. that, “although the decision to include a plan term setting forth various permissible uses for forfeitures is a settlor function, implementing that decision is a fiduciary function.”

But Robinson also relied on the Hutchins dismissal in his grounds for dismissing the complaint, contending that because ERISA does not require a fiduciary to maximize pecuniary benefits and the plan document did not create an entitlement to such benefits, the court would be at risk of “improperly extend[ing] ERISA beyond its bounds” if it established such an entitlement.

Dimou’s filings also argued that when Thermo Fisher used forfeitures to offset the company’s matching contributions, the company contributed less than 100% of the first 6% of the compensation contributed to the plan, which the company agreed was the matching formula between 2017 and 2022. As a result, Dimou alleged that the employer violated the anti-inurement provision of ERISA because it used the plan’s assets to forgive the employer’s debt to the plan.

However, Thermo Fisher argued that the matching contribution is not mandatory under the plan, so it is not a debt to the plan. Robinson agreed with a prior case in which the court ruled that allegations of “indirect” benefits to an employer are insufficient to bring an anti-inurement claim.

Several other forfeiture cases have been filed in the last few months, but courts seem to be split on decisions. Judges have rejected petitions by Qualcomm Inc. and Intuit Inc. to dismiss complaints, but they have dismissed lawsuits against HP and BAE Systems.

Lawyers representing Dimou in the Thermo Fisher case did not immediately respond to a request for comment.

Thermo Fisher is represented by law firm Covington & Burling LLP.