Home Depot Sued Over Use of Plan Forfeitures

Home Depot Inc. and its administrative committee are facing a lawsuit filed by a former employee, accusing the retailer of misusing plan forfeitures to reduce employer contributions to the 401(k) plan.

The complaint follows a slew of other recent cases against major employers over their use of 401(k) forfeitures. Some recent examples include complaints against Siemens Corp., Nordstrom Inc. and Bank of America Corp.

In Cano v. The Home Depot Inc. et al, filed Monday in U.S. District Court for the Northern District of Georgia, a participant in the Home Depot Futurebuilder plan, Guadalupe Cano, accused the company of breaching its duties under the Employee Retirement Income Security Act by failing to use forfeited funds to pay plan administrative expenses and instead using the funds “exclusively for the company’s own benefit.”

“Using the forfeitures to ‘reduce employer contributions’ is always in the best interest of Home Depot because that option would decrease the company’s own contribution costs,” the complaint states. “In deciding between using the forfeiture to benefit Home Depot or using the forfeitures to benefit the participants, defendants are presented with a conflict of interest in administering the plan and managing and disposing of its assets.”

Using plan forfeitures to reduce employer contributions is allowed under IRS rules, but it is also important for plan sponsors to ensure their plan documents specifically authorize this usage. The Department of Labor has not previously expressed any general concerns about the use forfeitures, except in a case last year where it successfully sued plan sponsor Sypris Solutions for applying forfeitures to reduce employer contributions, in violation of a plan provision that required that the forfeitures first be applied toward plan expenses.

In addition, the recent lawsuit accused Home Depot of failing to undertake any investigation into which option was in the best interest of the plan’s participants and beneficiaries. For example, Home Depot did not investigate whether there was a risk it would default on its matching contribution obligation if forfeitures were used to pay plan expenses, according to the complaint.

Home Depot’s administrative committee also did not consult with an independent party in deciding upon the best action for allocating the forfeitures in the plan, the complaint alleges.

The plaintiff requests that the court order the disgorgement of all assets and profits secured by Home Depot as a result of its alleged ERISA violations, as well as remove fiduciaries who breached their duties and surcharge Home Depot for any transactions deemed improper, excessive or in violation of ERISA.

According to its most recent Form 5500, the Home Depot Futurebuilder plan has more than $12 billion in assets and 460,862 participants.

The plaintiff is represented by law firms Skaar & Feagle LLP and Edelson Lechtzin LLP.

Home Depot did not immediately respond to a request for comment.

In a separate case against the company, the U.S. 11th Circuit Court of Appeals sided with Home Depot over a 401(k) excessive fee lawsuit earlier this month.