Administration November 6, 2024

Senate HELP Committee Chair Likely to Flip Under GOP Control

Meanwhile, control of the House remains undecided, but if House does not flip, GOP leadership positions likely to be unchanged on Education and Workforce Committee.

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Tuesday’s election will change the leadership of Senate committees, but few such changes are anticipated in the House of Representatives—where control remains undecided—for those that impact retirement policy.

The Senate Committee on Health, Education, Labor and Pensions and the House Committee on Education and the Workforce are the main committees that effect policy change in the retirement plan industry.

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While Republicans have won control of the Senate, control of the House is still undecided, as of Wednesday afternoon. Any changes to committee leadership will not come until the 119th Congress convenes in 2025.

Senate HELP Committee

The Senate HELP Committee is chaired by Bernie Sanders, I-Vermont, who won re-election, defeating Republican opponent Gerald Malloy. This secures Sanders’ fourth term in the Senate.

The ranking member of the committee is Bill Cassidy, R-Louisiana, whose term does not expire until 2027. He could take over the chairmanship in the new Congress, as Sanders traditionally has caucused with the Democrats and is not likely to retain the chair in a GOP-controlled Senate. The committee is currently comprised of 21 Senators—11 Democrats and 10 Republicans—and three subcommittees, which have broad jurisdiction over the country’s health care, education, employment and retirement policies.

Democratic incumbent Bob Casey Jr., another HELP Committee member, is currently trailing Republican Dave McCormick in the Senate race in Pennsylvania by a slim margin, according to the Associated Press. Democratic committee member Tammy Baldwin is currently leading by a small margin against Republican Eric Hovde in Wisconsin. The AP has not called either race, as of Wednesday afternoon.

House Committee on Education and Workforce

Representative Virginia Foxx, R-North Carolina, is the current chair of the Committee on Education and the Workforce. Foxx defeated Democratic opponent Chuck Hubbard in the race for North Carolina’s 5th Congressional District on Tuesday. If Republicans retain the House, Foxx could retain the chair during her 11th term serving in the House.

The committee is currently controlled by Republicans, with 25 Republican members and 20 Democratic members. In July, the committee voted 23 to 18 to pass a Congressional Review Act resolution to overturn the Department of Labor’s Retirement Security Rule—also called the fiduciary rule. This rule would extend the fiduciary duties under the Employee Retirement Income Security Act to one-time recommendations to retirement investors.

The rule, finalized by the Department of Labor in April, has also been stayed by two federal courts. The DOL in September said it would appeal the two Texas federal court decisions. Given overall support for reduced regulatory efforts, it is not likely the DOL under President-elect Donald Trump would continue to back the rule.

Compliance November 5, 2024

Judge Dismisses 401(k) Forfeiture Lawsuit Against Clorox

The federal judge in California described the plaintiff’s claims as ‘impermissibly broad,’ but did grant the plaintiff a chance to file a revised complaint.

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A former Clorox Co. employee’s class action complaint over the company’s handling of forfeited 401(k) funds was mostly dismissed, with U.S. District Judge Yvonne Gonzalez Rogers ruling the breach claim under ERISA was “impermissibly broad” in a court document filed November 1.

Rogers gave the plaintiff, James McManus, until November 12 to file a revised complaint, asking for more specific details about the Clorox plan’s circumstances to support his claims of fiduciary imprudence or disloyalty. Rogers referenced the need to show “special circumstances” that impacted fund management, citing a U.S. Supreme Court standard from Fifth Third Bancorp v. Dudenhoeffer.

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The plaintiff claimed that Clorox’s method of reallocating forfeited contributions effectively used plan assets to offset the company’s expenses, which he argued was improper under the Employee Retirement Income Security Act. Clorox countered in its motion to dismiss, stating that redirecting forfeitures within the plan itself is allowed.

ERISA’s anti-inurement provision mandates that plan assets solely benefit participants or cover plan costs. Referencing a 1999 decision in Hughes Aircraft Co. v. Jacobson, Rogers noted that incidental benefits to employers do not violate this rule and ultimately dismissed this specific claim, as indirect benefits to Clorox were deemed insufficient grounds to move ahead.

“In those cases, as here, defendants received indirect and incidental benefits from funds to which plaintiff is not entitled under the Plan language,” Rogers wrote. “The Court GRANTS defendants’ motion to dismiss on this ground. As plaintiff indicated on the record that he would not reassert this claim, LEAVE TO AMEND is not granted.”

The ruling is an initial positive for Clorox, one among many recent defendants alleged to have misused plan forfeiture funds.

The Case

The initial complaint in McManus v. The Clorox Co. was filed in October 2023 in U.S. District Court for the Northern District of California by McManus, a participant in the company’s 401(k) plan, alleging the company misused forfeited funds. McManus claimed Clorox improperly applied these funds—totaling about $5.7 million from 2017 to 2022—to reduce company contributions rather than to defray plan costs for participants. In December 2023, Clorox filed its motion to dismiss the case.

Clorox’s defense argued that its use of forfeitures aligned with IRS guidelines and was documented within its plan rules. The company asserted that the allocation of forfeited funds to reduce employer contributions is a well-established practice supported by IRS regulation. Clorox’s lawyers claimed this is consistent with federal guidance and noted that the complaint is part of a larger wave of similar suits.

Using 401(k) plan forfeitures to offset employer contributions has been a longstanding practice permitted by U.S regulators, according to experts. But recent litigation scrutinizing plan fiduciaries’ use of forfeitures under ERISA continues both to be filed and to progress in the courts.

In August, a class action complaint was filed against Bank of America, and two existing lawsuits against Intuit Inc. and Qualcomm Inc. survived district court challenges by the defendant companies. The plaintiff in the Bank of America lawsuit is represented by Haffner Law PC. Meanwhile plaintiffs in the Intuit and Qualcomm cases were Hayes Pawlenko LLP.

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