An Amazon employee has sued the company and its retirement plan fiduciaries, alleging the Amazon 401(k) plan violates federal law through its policy of managing company-match funds from employees who leave before they are fully vested.
Amazon is the latest defined contribution plan defendant in a series of approximately 30 forfeiture lawsuits since September 2023. The common complaint is that even though 401(k) plans have discretion in managing forfeited funds, they are violating ERISA if they don’t use the money to reduce the plan's expenses.
“Had the plan fiduciaries exercised discretion over the forfeited plan assets solely in the interest of the participants and beneficiaries, the plan fiduciaries would have chosen to use plan forfeitures to defray the reasonable expense of administering the plan or allocated the forfeitures back to eligible participants,” said the lawsuit filed Dec. 30 in a U.S. District Court in Seattle.
The plan’s fiduciaries “reflexively chose to use the forfeitures for their own interest, to the detriment of the plan and plan participants, by allocating plan forfeitures toward reducing the company’s outstanding and unpaid contributions owing to the plan,” said the complaint in Curtis vs. Amazon.com Inc. et al.
The Amazon 401(k) plan has a three-year vesting period for the company match, the lawsuit said. Individual contributions to their 401(k) plan are not affected.
The Internal Revenue Service says retirement plans can use forfeited funds to reduce corporate contributions to the plan, reduce plan expenses or allocate forfeited funds back to eligible participants.
The lawsuit acknowledged that Amazon can make a choice, but it criticized the defendants for putting corporate interests — reducing company contributions — ahead of participants’ interests.
The lawsuit, which is seeking class action status, said the alleged plan mismanagement took place from 2018 through 2023. It claimed more than 20,000 participants could have been affected since 2018.
“While we’re still reviewing the details of this case, we believe these allegations lack merit. We look forward to proving that through the legal process,” Montana MacLachlan, an Amazon spokesperson, wrote in an email.
So far, federal court rulings yield no clear verdict on forfeiture lawsuits. Complaints against Honeywell International, HP, Thermo Fisher Scientific, Clorox and BAE Systems have been dismissed. Complaints against Intuit and Qualcomm have survived motions to dismiss.
One federal judge ruled that a forfeiture lawsuit against Tetra Tech should be addressed by arbitration. The John Muir Health hospital system in November agreed to settle a lawsuit by a 401(k) plan participant who alleged ERISA violations of high record-keeping fees and poor investment choices as well as mishandling of forfeited funds.
The Amazon 401(k) Plan, Seattle, had assets of $17.7 billion as of Dec. 31, 2022, according to the latest Form 5500.
