Courts Holds Statements in Form 5500 Did Not Bolster Viability of ERISA Claims

On May 1, 2025, the U.S. District Court for the District of Arizona dismissed with prejudice a 401(k) forfeitures lawsuit in Sievert v. Knight-Swift Transportation Holdings, Inc., No. 24-cv-02443-PHX-SPL (D. Ariz). This case is one of several recently filed class action lawsuits alleging the novel theory that plan sponsors are required under ERISA to use funds forfeited by participants to pay plan expenses and not to offset employer contributions. In Sievert, the plaintiffs alleged that the company's failure to use forfeited funds toward the plan's administrative fees violated ERISA by (1) breaching the fiduciary duty of loyalty, (2) breaching the fiduciary duty of prudence, (3) breaching ERISA's anti-inurement provision, and (4) causing the plan to engage in prohibited transactions. They further asserted that the company failed to adequately monitor other fiduciaries, also in violation of ERISA. 

While the Sievert lawsuit contains allegations similar to other forfeitures lawsuits, the plaintiffs here also relied on a statement made in the plan's Form 5500 filings that "forfeitures of nonvested contributions and earnings thereon shall be used to pay Plan expenses and to the extent any remain, to reduce the Company's matching contribution." The plaintiffs argued that because of this statement, the defendant violated ERISA by using the forfeited funds in a different manner than described in the Form 5500. The plaintiffs did not dispute that it was in the company's discretion to use the forfeiture funds to decrease employer contributions. According to the court, "[t]he question is whether Defendant violated ERISA by representing under penalty of perjury, in its Form 5500s, that Plan forfeitures would be used to pay administrative expenses, but ultimately using those forfeitures to decrease its own contributions" (emphasis in original).

In dismissing the complaint, the court stated that the plaintiffs failed to show that the statement in the Form 5500 created a binding legal obligation with respect to the use of the forfeited funds, as the terms of the plan document govern the plaintiffs' rights. Agreeing with the reasoning in Hutchins v. HP Inc., No. 5:23-cv-05875 (N.D. Cal.), in which an amended complaint was dismissed with prejudice by the district court and which is now on appeal before the Ninth Circuit, the Sievert court held that allegations that a plan sponsor used forfeitures to reduce its employer contributions, without more, are not enough to state a plausible claim under ERISA. In reaching this conclusion, the court found unpersuasive another recent decision in the same district, McManus v. Clorox Co., No. 4:23-cv-05325 (N.D. Cal. Mar. 3, 2025), in which the court held that the plaintiffs' allegations that the defendant was motivated by self-interest in exercising its discretion to use forfeitures to offset its non-elective contributions were sufficient to state a viable ERISA breach of loyalty claim. 

The Sievert court relied on similar reasoning to dismiss the plaintiff's anti-inurement and failure to monitor claims. The court also held that the reallocation of plan assets to provide benefits to employees as matching contributions was not a "transaction" for purposes of an ERISA prohibited transaction claim.

While there has been a mix of outcomes in these cases to date – even within the same federal district – most courts that have dismissed these cases have done so "without prejudice," giving the plaintiffs an opportunity to amend their complaints for a second bite at the apple. Sievert is one of the few dismissals with prejudice after a plaintiff's first try. The court reasoned that because plaintiffs were able to draft their response to the motion to dismiss "after rulings have been issued in many of these similar cases," their reliance on allegations about the plan's Form 5500 filings as "particularized facts or special circumstances" to distinguish this case from others was not enough to withstand dismissal or to warrant a chance to refile. These cases continue to be ones to keep an eye on as they progress in the district and appellate courts. 

Parties Submit Supplemental Briefs on Statutory Appointment Power in Braidwood

On May 5, 2025, the Department of Justice (DOJ) Office of the Solicitor General and the plaintiff-respondents filed supplemental briefs with the U.S. Supreme Court in Kennedy v. Braidwood Management, Inc., No. 24-316 (U.S.), responding to the Court's request for briefing on "whether Congress has 'by Law' vested the Secretary of the Department of Health and Human Services with the authority to appoint members of the United States Preventive Services Task Force [PSTF]." The Solicitor General's brief argues that Congress has so vested the appointment authority, while the respondents' brief argues that Congress did not vest the appointment of the PSTF in anyone.

As previously covered in its earlier stages of litigation, Braidwood concerns the constitutionality of the PSTF, which sets standards for preventative service coverage under the Affordable Care Act (ACA). The Fifth Circuit agreed with the challengers to the law that the members of the PSTF are "principal officers" such that they must be appointed by the president with advice and consent from the Senate and because the PSTF was not so appointed, upheld relief from the PSTF's mandates as to the named plaintiffs, though it reversed the nationwide injunction issued by the lower court. Both the government and the plaintiffs petitioned the Supreme Court to take the case. The Supreme Court granted certiorari and held oral argument in April 2025. In his briefing and at oral argument, the Solicitor General argued that the PSTF is made up of "inferior officers" constitutionally appointed by the Secretary of the Department of Health and Human Services (HHS), as required by the Constitution's Appointments Clause. The respondents continued to assert that the PSTF is made up of principal officers, but, even if the members were inferior officers, the relevant statutes do not properly vest their appointment the "[p]resident alone, in the Courts of Law, or in the Heads of Departments" so as to displace the requirement of advice and consent. On April 25, 2025, the Court, in a rare move, requested supplemental briefing on this last issue.

The Solicitor General's brief asserts that the statute creating the PSTF, which provides that the Director of the Agency for Healthcare Research and Quality (AHRQ) shall "convene" the task force, necessarily authorizes appointment by the Director. Then, because two other laws subject the Director of AHRQ to the authority and direction of the Secretary of HHS, the laws "ultimately vest that appointment authority in the Secretary." According to the government, the relevant laws should be read together to require the approval of the Secretary of any appointments made by the Director, and, further, to allow the Secretary to directly appoint the PSTF (which it did for the current members). The Solicitor General argues that by requiring the approval of the Secretary, this situation should be understood as analogous to that which was found constitutional in United States v. Hartwell, 73 U.S. (6 Wall.) 385 (1868), a case the Court specifically asked the parties to address. Finally, the Solicitor General argued that the Court should resolve any statutory ambiguities in favor of vesting the Secretary with the appointment power, under the canon of constitutional avoidance.

The respondents contend to the contrary that "convene" cannot and, if ambiguous, should not be read to mean "convene and appoint." Because the relevant statute is silent as to who is vested with the appointment power for the PSTF, the brief argues that the "constitutional default rule" should apply. The respondents also raise the constitutional avoidance canon, in this case to argue that the Court should not understand "convene" to include the power to appoint, because if the PSTF members are principal officers as the respondents contend, then the statute will be blatantly unconstitutional. Further, the respondents argue that even if the Court agrees with the government that the members are inferior officers and that the law authorizes the Director and the Secretary to appoint them, the result is still an Appointments Clause violation, because the laws do not require the Secretary to give express approval of the Director's picks. As such, they argue this situation is actually more akin to that of United States v. Smith, 124 U.S. 525 (1888), another case the Court requested that the parties address, which found that a customs collector was not properly an "officer" because no statute required the approval of his appointment by the head of the department. Finally, the respondents' brief states that the Court should be "hesitant" to rule on this issue where there has not been full adversarial briefing on it in the lower court or the Supreme Court.

The Supreme Court has not ordered any further briefing or argument in this case, therefore a ruling may be expected in the next couple of months, the scope of which remains to be seen.

Upcoming Speaking Engagements

At the American Staffing Association 2025 Staffing Law & Compliance Conference, Joanne will present "State Equal Benefit Laws Covering the Staffing Industry" as part of the Legal and Legislative Committee Meeting and Lunch.

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