Siemens Targeted in New Forfeiture Lawsuit

A new 401(k) plan forfeiture lawsuit has been filed against multinational technology and manufacturing company Siemens Corp., accusing the firm of working out of self-interest by using forfeitures to reduce employer contributions.

In Cain v. Siemens Corp., filed on August 23 in U.S. District Court for the District of New Jersey, Jim Cain, a participant in the Siemens Savings Plan, alleges that Siemens violated the Employee Retirement Income Security Act by using the assets of the plan “in its own interest.”

According to the complaint, Siemens 401(k) plan documents give the company options with respect to reallocating forfeitures, which are unvested employer contributions that revert to the plan when a participant’s employment is terminated.

The first option allows the company to use forfeitures to reduce the company’s contributions to the plan. The lawsuit alleges that this option is always in Siemens’ best interest because it lowers the company’s contribution costs, but it also might be in the participants’ best interest if there is a risk that Siemens would default on its obligation to the plan.

The second option allows Siemens to use forfeitures to pay plan expenses, which the plaintiff argues is in the best interest of the plan participants because it reduces or eliminates the amounts charged to their individual accounts to cover such expenses.

However, the complaint states, “In choosing between the options for using forfeitures in the plan, [Siemens] had a conflict of interest because they stood to benefit financially from choosing the first option and therefore had an incentive to choose the first option over the second option.”

Siemens is also accused of failing to undertake any investigation into which option was in the best interest of the plan’s participants. For example, the complaint alleges that Siemens did not investigate the possibility that Siemens could default on its contribution obligation if forfeitures were used to pay plan expenses.

The firm also “failed to consult with an independent non-conflicted decisionmaker to advise them in deciding upon the best course of action for allocating forfeitures,” the lawsuit alleges.

Although the Siemens plan permits the use of forfeitures to pay plan expenses, the firm “consistently and reflexively declined to use any forfeitures for that purpose,” the complaint states.

“Throughout the class period, Siemens was in a sound financial position and was under no risk of defaulting on its contribution obligation to the plan,” the complaint states. “Nevertheless, defendants have consistently chosen to use all plan forfeitures to reduce the company’s contributions to the plan and none of the forfeitures to defray the plan expenses borne by participants.”

According to the IRS, which reaffirmed its position in 2023, 401(k) plan forfeitures can be used for any of three permitted purposes: to pay plan expenses, to reduce employer contributions or to make an additional allocation to participants.

Several companies, however, have been targeted in recent litigation in the last three months for their use of forfeitures. These companies include Nordstrom Inc., Bank of America Corp., Intuit Inc., Qualcomm Inc. and Wells Fargo.

The Siemens Savings Plan had $8.9 billion in assets, according to the firm’s 2023 Form 5500 filing, and 41,010 participants as of December 31, 2023. Siemens did not respond immediately to a request for comment.