A run of recent federal rulings rejecting participant lawsuits over the use of 401(k) forfeitures to offset employer contributions has a new, high‑profile entry: a Central District of California judge has dismissed without leave to amend a putative class action against AT&T, reinforcing an emerging body of decisions that find such claims legally deficient when plan documents expressly permit the practice and no plan assets were diverted outside the trust.
On November 17, 2025, U.S. District Judge Otis D. Wright II granted AT&T Services Inc.’s motion to dismiss in Luis Hernandez v. AT&T Services, Inc., concluding the complaint failed to state a plausible claim under ERISA. The complaint alleged AT&T improperly “used forfeited nonvested plan assets for its own benefit, to reduce future employer contributions, rather than for the benefit of Plan participants,” but Judge Wright found the AT&T plan expressly authorized the allocation steps the defendant followed and that the plaintiff did not allege any out‑of‑plan diversion of assets necessary to sustain an anti‑inurement claim. The court dismissed the suit with prejudice — meaning the complaint may not be refiled in that court. This decision follows a wave of similar federal rulings in 2024–2025 that have rejected forfeiture reallocation suits against large employers including Home Depot, Siemens, Nordstrom and others, and mirrors recent regulatory posture signals from the U.S. Department of Labor that have tended to favor plan sponsors where plan terms and longstanding Treasury guidance support an employer’s use of forfeitures to offset contributions or pay plan expenses. Why it matters: these cases test where ERISA’s fiduciary duties end and a plan sponsor’s settlor/plan‑design choices begin. Plaintiffs argue that using forfeitures to reduce an employer’s future contribution obligations (or to avoid employer payment of participant fees) effectively deprives participants of benefits they might otherwise have received. Defendants and several courts have answered that ERISA protects the benefits the plan promises; it does not require fiduciaries to create or maximize extras beyond contractually promised benefits, particularly when plan documents and decades of Treasury/DOL guidance permit the forfeiture treatment at issue.
The Hernandez ruling underscores a simple lesson for plan governance: clear plan drafting, consistent practice and robust documentation materially reduce litigation risk. Plaintiffs will keep challenging practices they view as unfair; plan sponsors that align written instruments, administrative practice, and record evidence will be best poised to defend those cases early and efficiently.
Source: plansponsor Federal Judge Tosses AT&T 401(k) Forfeiture Complaint | PLANSPONSOR
On November 17, 2025, U.S. District Judge Otis D. Wright II granted AT&T Services Inc.’s motion to dismiss in Luis Hernandez v. AT&T Services, Inc., concluding the complaint failed to state a plausible claim under ERISA. The complaint alleged AT&T improperly “used forfeited nonvested plan assets for its own benefit, to reduce future employer contributions, rather than for the benefit of Plan participants,” but Judge Wright found the AT&T plan expressly authorized the allocation steps the defendant followed and that the plaintiff did not allege any out‑of‑plan diversion of assets necessary to sustain an anti‑inurement claim. The court dismissed the suit with prejudice — meaning the complaint may not be refiled in that court. This decision follows a wave of similar federal rulings in 2024–2025 that have rejected forfeiture reallocation suits against large employers including Home Depot, Siemens, Nordstrom and others, and mirrors recent regulatory posture signals from the U.S. Department of Labor that have tended to favor plan sponsors where plan terms and longstanding Treasury guidance support an employer’s use of forfeitures to offset contributions or pay plan expenses. Why it matters: these cases test where ERISA’s fiduciary duties end and a plan sponsor’s settlor/plan‑design choices begin. Plaintiffs argue that using forfeitures to reduce an employer’s future contribution obligations (or to avoid employer payment of participant fees) effectively deprives participants of benefits they might otherwise have received. Defendants and several courts have answered that ERISA protects the benefits the plan promises; it does not require fiduciaries to create or maximize extras beyond contractually promised benefits, particularly when plan documents and decades of Treasury/DOL guidance permit the forfeiture treatment at issue. What the AT&T ruling actually decided
The legal claims at issue
The Hernandez complaint advanced the typical quartet of claims that recur across the forfeiture litigation wave:- breach of fiduciary duty (loyalty/prudence) under ERISA §404;
- anti‑inurement/self‑dealing (prohibited benefit to the employer) under ERISA §1103/1106;
- prohibited transactions under §406;
- failure to monitor derivative claims.
Plan terms controlled the outcome
A central reason for dismissal was the plan instrument itself. The AT&T Retirement Savings Plan — like many large defined‑contribution plan documents — expressly authorized the allocation of forfeitures in one or more of the following ways: to reduce employer contributions next due; to fund corrective employer contributions; and/or to pay plan administration expenses. Because the plan explicitly authorized the contested allocation, the court held that the fiduciary conduct fell within the forms of discretion the document allowed and therefore could not be second‑guessed simply because a plaintiff would have preferred a different allocation.No diversion of plan assets = no anti‑inurement
Judge Wright emphasized a critical pleading failure: Hernandez did not allege that any plan assets were diverted out of the plan or used to pay obligations of AT&T outside the plan. Courts have repeatedly recognized that anti‑inurement claims require more than the observation that a plan’s design or practice results in lower employer outlays; plaintiffs must plead facts showing plan assets were used in a way that inured to the non‑plan benefit of the sponsor. Because the complaint lacked such allegations, the anti‑inurement and prohibited transaction theories failed.How this fits into a broader, developing body of law
A steady stream of dismissals
Over the last 18 months courts across multiple jurisdictions have dismissed a number of similar cases on substantially identical grounds: when plan documents permit the use of forfeitures to offset employer contributions or pay plan expenses, and no plan assets are alleged to have left the trust or been diverted to the sponsor, the fiduciary breach and prohibited transaction theories typically fail at the pleading stage. Reported dismissals include decisions concerning Home Depot, Siemens, Nordstrom, Honeywell and others; legal analyses and trade groups have tracked these dismissals and their common reasoning.Department of Labor and industry amici
The Department of Labor made a consequential procedural and policy intervention in July 2025, filing an amicus brief in an appellate matter (Hutchins v. HP) explaining that the Secretary of Labor views a fiduciary’s use of forfeited employer contributions in the ways at issue as not, without more, a violation of ERISA. That brief and industry amicus efforts emphasize that Treasury rules, DOL interpretive guidance and decades of plan drafting practice have long accepted forfeiture allocations that either defray administrative costs or offset employer contributions. The DOL brief has been treated as a meaningful signal in district court briefing and decisions since it articulates the federal agency’s view of how ERISA principles apply to forfeiture allocation claims.Appellate courts still the next vector
Although district courts have frequently sided with defendants at the Rule 12 stage, several cases have continued up the appellate ladder, and the higher courts’ treatment remains determinative for the longer term. Plaintiffs continue to file new suits and some district courts have produced split results on narrow lines of fact — particularly where a plan does not clearly permit the contested use of forfeitures or where plaintiffs allege factual predicates showing diversion, conflict, or extreme unfairness. That mix of outcomes ensures the issue is likely to be resolved at a circuit level or through further authoritative DOL guidance.The facts that mattered in the AT&T case — and why plaintiffs struggled
1) Plan language is decisive
At the pleading stage, courts give controlling weight to the plan document. If the plan expressly allows the allocation at issue, and if plaintiffs do not allege that promised benefits have been reduced or withheld, courts routinely hold plaintiffs have not shown a cognizable ERISA injury. The Hernandez complaint acknowledged the plan’s language but argued the plan’s implementation still violated ERISA; Judge Wright found that argument insufficient.2) No allegation of out‑of‑plan diversion
To sustain anti‑inurement or prohibited transaction claims, plaintiffs typically must allege facts showing Plan assets left the Plan or were used to further the sponsor’s interests outside the universe of the plan’s contractual promises. Hernandez did not plead such diversion, and that omission was fatal.3) Relief sought would create benefits beyond the plan
Judge Wright reiterated an important principle courts have repeated in this genre of cases: ERISA protects the benefits promised by the plan and enforces fiduciary duties in that context. ERISA does not compel fiduciaries to maximize every dollar for participant accounts beyond what the plan promises, nor to reinterpret settled plan choices into guaranteed windfalls. Where plaintiffs’ theories require courts to rewrite plan terms or to impose a novel contractor‑style entitlement to have expenses paid by employers rather than participants, courts have been reluctant to accept those theories.Numbers and verification: what the record shows about AT&T’s plan
- The AT&T Retirement Savings Plan is one of the largest corporate defined‑contribution plans in the United States. AT&T’s audited Form 11‑K for the plan reports master trust investments of approximately $42.55 billion at December 31, 2024 (figures are reported in thousands in the 11‑K). That figure is documented in AT&T’s publicly filed 11‑K annual report.
- Media coverage and trade press reporting of the Hernandez suit referenced a plan participant population of roughly 203,226 and plan assets in the low‑forties billions. Because filings use different documents and reporting formats (Form 11‑K, Form 5500, master trust schedules), numbers can differ slightly depending on whether they capture plan assets, assets under master trust investment, or participants included in the Form 5500 for a particular plan year. Where exact participant counts matter for analysis, the SEC 11‑K and the DOL Form 5500 are the primary authoritative sources; the 11‑K confirms the plan’s multibillion dollar scale for year‑end 2024. Readers should consult the plan’s 11‑K and Form 5500/5500‑EZ filings for line‑by‑line reconciliation.
What the decision means for plan sponsors and fiduciaries
Short‑term practical takeaways
- Review and document plan‑document language: sponsors whose plan instruments plainly authorize the allocation of forfeitures to certain uses (offsetting employer contributions, funding corrective contributions, paying administrative expenses) are substantially better positioned to defeat forfeiture claims at the pleading stage. Clear, consistent plan text that matches practice is an essential defensive asset.
- Maintain contemporaneous governance records: minutes, analyses and audit trails showing that allocation decisions were made in accordance with plan terms and fiduciary processes will be valuable in discovery and in any event where factual disputes reach a merits phase. Courts often treat good documentation as a strong sign the fiduciaries acted prudently.
- Watch DOL signals: the Department of Labor’s July 2025 amicus brief and related agency commentary have provided favorable interpretive cover for sponsors in many cases. While agency views are not dispositive on their own, they carry persuasive weight and will be a constant factor in litigation strategy.
Risks that remain for sponsors
- If a plan’s terms do not authorize the contested practice, or if executives or administrators deviate from the plan’s written authorization, courts are more willing to allow plaintiffs to proceed. Sponsors with ambiguous or silent plan language on forfeitures should consider clarifying plan documents through careful amendment and legal counsel.
- Appellate authority is not universal yet. The current spate of district‑court dismissals is persuasive but not binding on other circuits; plaintiffs will continue to press cases in forums they view as more receptive (and higher courts could yet produce mixes of outcomes). Sponsors should not treat dismissal risk as zero simply because several district courts have sided with defendants.
What the decision means for participants and litigators
For participants / plaintiff counsel
- The path to victory is narrower: to survive dismissal, complaints must move beyond formulaic allegations and plead specific facts showing either (1) the plan document does not allow the allocation at issue; (2) plan assets were diverted outside the trust to the employer; or (3) the plan fiduciaries engaged in disloyal or imprudent conduct that caused a measurable loss to participants that is traceable to the defendants’ breaches. Broad policy arguments about fairness or optimal allocation are unlikely to satisfy pleading standards.
- Strategic targeting of plans with ambiguous drafting, poor documentation, or demonstrable implementation gaps will remain the viable route. Where a plan’s written terms are silent or inconsistent with practice, plaintiffs have shown some success in surviving early motions to dismiss.
For litigators on both sides
- Early motions practice matters: many of these forfeiture suits are resolved on Rule 12 motions. The difference between a favorable dismissal and a costly discovery fight often turns on how counsel frames the contract/plan‑document question and whether plaintiffs can plausibly allege diversion or concrete injury.
- Agency amicus and amici curiae briefs are consequential: DOL’s participation and trade‑association briefs are shaping the doctrinal framing courts use in these cases. Expect amici filings to continue to feature prominently in appellate briefing.
Beyond forfeitures: the parallel landscape of pension risk transfer litigation
A related litigation stream — claims challenging employers’ pension risk transfers (PRTs) to insurers — continues to attract attention and has produced mixed results. In a separate, highly watched case, a federal magistrate in the District of Massachusetts recommended dismissal of a PRT challenge against AT&T (Piercy et al. v. AT&T Inc., concluding that the decision to effect a pension risk transfer is a settlor, not fiduciary, function and that plaintiffs failed to plausibly allege imprudence or disloyalty in the implementation. The district judge accepted much of the recommendation but engaged closely with standing arguments; the PRT litigation remains distinct in doctrine and stakes from the forfeiture cases, though both test the boundaries of fiduciary law in the ERISA setting. Why this matters: PRT cases raise a different set of prudence, disclosure and counterparty selection questions that can implicate substantial dollar exposure (annuity purchase programs often run into the billions). Forum selection, record evidence about selection criteria, and whether the transaction is treated as a settlor function or a fiduciary function fundamentally shape the outcome. The PRT line of cases will continue to be monitored separately from forfeiture litigation, but both tracks are part of a larger post‑ERISA litigation landscape testing the reach of fiduciary duties.Conclusions and practical advice for plan sponsors, advisers and recordkeepers
The Hernandez dismissal is not just one more favorable ruling for a large plan sponsor — it is another data point in a pattern of district courts applying ERISA’s text, plan documents and decades of Treasury/DOL guidance to reject novel plaintiff theories that seek to recast lawful plan design choices as fiduciary breaches. Sponsors should take the following actions now:- Review and, if necessary, clarify plan documents to ensure the treatment of forfeitures is consistent with plan operation and the sponsor’s intent.
- Document governance processes: maintain contemporaneous meeting minutes, allocations memos, and formal analyses showing that forfeiture allocations were implemented per the documents and that fiduciaries considered relevant factors.
- Coordinate with counsel before changing practice: operational changes to forfeiture allocation or expense‑sharing practices should be implemented only with legal review and communication to participants where appropriate.
- Keep an eye on appellate developments and agency guidance — the law is still evolving and both courts and the DOL may provide sharper boundaries that either broaden or limit sponsor flexibility.
The Hernandez ruling underscores a simple lesson for plan governance: clear plan drafting, consistent practice and robust documentation materially reduce litigation risk. Plaintiffs will keep challenging practices they view as unfair; plan sponsors that align written instruments, administrative practice, and record evidence will be best poised to defend those cases early and efficiently.
Source: plansponsor Federal Judge Tosses AT&T 401(k) Forfeiture Complaint | PLANSPONSOR