Amazon Faces Class Action For Alleged Mismanagement Of Forfeited 401K Funds
Amazon is facing a proposed class action alleging the company violated federal law by using nearly $350 million in forfeited 401(k) funds to offset their own contributions rather than to reduce administrative fees for over 20,000 participants.
The suit filed in Seattle federal court by employee Cory Curtis earlier this week accuses Amazon of self-dealing and violating its duties of loyalty and prudence under the federal Employee Retirement Income Security Act, which governs employee benefit plans.
Participants in Amazon's 401(k) plan become fully vested and entitled to matching contributions from the company after three years of service, but between 2018 and 2023, plan participants who did not fully vest forfeited about $349 million in matching funds, according to the complaint.
But instead of allocating that money to cover over $18 Million in administrative fees for the plan during that period, Amazon used the funds to reduce its own matching contributions.
While reducing matching contributions is apparently one of the uses allowed by the plan's terms, Curtis argues the Fiduciaries who exercised discretion and control over the plan's assets were legally required to act solely in the interests of the participants, thus the funds should have been used to benefit those participants rather than Amazon.
The Plan document gives the Plan Fiduciaries discretion to use Plan assets that have been forfeited by Plan participants for one of three purposes: (i) reduce future matching contributions; (ii) pay Plan administrative expenses; or (iii) restore forfeited accounts.
When making the decision regarding the use of Plan forfeitures, the Plan Fiduciaries have been and are required by 29 U.S. Code § 1104 to discharge [their] duties with respect to a plan solely in the interest of the participants and beneficiaries and for the exclusive purpose of providing benefits to participants and their beneficiaries and defraying reasonable expenses of administering the plan.
Accordingly, as explicitly provided in 29 U.S.C. § 1002(34), the Plan Fiduciaries also had the discretion to allocate “forfeiture of accounts of other participants” to Plan Participants...
...As described in detail above, throughout the Class Period, Defendants (Plan Fiduciaries) exercised discretion over, and control of, Plan assets and consistently and 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.
All else being equal, had the Plan Fiduciaries decided throughout the Class period to use Plan forfeitures to defray the reasonable expense of administering the Plan or allocated the Plan forfeitures back to eligible participants, the value of the Plan and the value of the accounts of the Plan participants would have been greater thereby providing greater retirement benefits to Plan Participants.
The lawsuit seeks certification of a nationwide class of Amazon 401(k) participants as well as an order requiring Amazon to make good all losses to the Plan resulting from each violation of ERISA and to remove Fiduciaries who have breached their duties while enjoining them from future ERISA violations.
The case is Curtis v. Amazon.com, U.S. District Court for the Western District of Washington, No. 2:24-cv-02164.
