A federal judge in San Diego has fired the first shot in a looming battle between IRS and ERISA rules, rejecting Qualcomm Inc.’s petition to dismiss a lawsuit by a 401(k) plan participant over the policy of company contributions to retirement plans.
“The Supreme Court instructs courts to take a context-specific view of ERISA cases and separate the meritorious claims from the implausible claims,” U.S. District Court Judge Roger T. Benitez wrote May 24. “Taken in context plaintiff describes plausible claims for relief.”
The key issue here — and in similar lawsuits — is what sponsors can do with company contributions to a participant’s retirement account if the participant leaves before being fully vested.
The Internal Revenue Service says defined contribution plans can use the forfeiture money to reduce employer contributions to the plan or reduce plan expenses. Qualcomm chose the former, according to Antonio Perez-Cruet vs. Qualcomm Inc. et al.
Qualcomm’s plan says an employee is 50% vested after the first year of employment and 100% after two years. Employee contributions are not affected.
The plaintiff, a former employee but still a plan participant, sued in October 2023 claiming ERISA’s guidelines say plan executives’ fiduciary duty is to reduce plan expenses. The plaintiff conceded that fiduciaries had a choice based on plan documents, but he said ERISA trumps the IRS.
“Plaintiff had made a plausible claim” that Qualcomm “put its own interests ahead of the interests of the plan participants by choosing not to act for the exclusive purpose of benefitting plan participants,” Benitez wrote.
Playing by the plan’s rules wasn’t enough to support the defendants, the judge wrote. “In this context, the defendants’ choice allegedly harmed the participants by letting the administrative expense charge fall on the participants rather than the employer.”
Starting in September 2023, the same law firm — Hayes Pawlenko — began suing companies and their 401(k) plans, each alleging ERISA violations over the use of forfeited funds. Defendants include Clorox Co., Thermo Fisher Scientific Inc., HP Inc., Intuit Inc., Mattel Inc., Honeywell International Inc. and Tetra Tech Inc.
On May 17, a federal judge in Los Angeles ruled that the Tetra Tech dispute should be resolved by arbitration in Yagy vs. Tetra Tech Inc. et al.
Qualcomm Inc. Employee Savings & Retirement Plan, San Diego, had $6.5 billion in assets as of Dec. 31, 2022, according to the latest Form 5500.
