Forfeiture Lawsuit Filed Against Cigna; Intuit Reaches Settlement

While lawsuits continue to be filed against companies alleging their management of forfeited funds in 401(k) plans violates their duties under the Employee Retirement Income Security Act, another company has reached a settlement agreement.

The Cigna Group is the latest company to face a lawsuit over its treatment of forfeitures. Meanwhile, software company Intuit Inc. has reached a settlement after the court had allowed the case to continue in 2024.

New Complaint Filed

In Reven et al. v. The Cigna Group 401(k) Plan Retirement Plan Committee, filed Wednesday in the U.S. District Court for the Eastern District of Pennsylvania, former employees accused the health insurance company of allocating forfeited 401(k) funds to reduce employer contributions to the plan instead of using the funds to reduce or eliminate the amounts charged to plan participants for plan administrative costs.

However, according to the IRS, which reaffirmed its position in 2023, 401(k) plan forfeitures can be used for any of three permitted purposes: to pay plan expenses, to reduce future employer contributions or to make an additional allocation to participants. 

The former employees, represented by Capozzi Adler P.C., also alleged that Cigna fiduciaries breached their duty of prudence by selecting and maintaining a certain stable value investment with lower crediting rates when compared with similar available investments with higher crediting rates. The crediting rate is the guaranteed rate of return for the investment fund.

According to the complaint, Cigna allowed substantial assets to be invested in the plan’s stable value offering, known as the Fixed-Income Fund, which is invested in a traditional guaranteed investment contract with Prudential Retirement Insurance & Annuity Co. and three synthetic GICs offered by Prudential Insurance Co. of America, Voya Retirement Insurance and Annuity Co. and Massachusetts Mutual Life Insurance Co.

The complaint claims that this fund provided “significantly lower rates of return” than comparable stable value funds that were available, thereby costing participants millions of dollars in returns.

The plaintiffs are seeking for an order compelling Cigna to make good on all plan losses, as well as an order requiring the company to disgorge all profits made from the “fiduciary breaches.”

A spokesperson at Cigna commented, “We are proud of the benefits we offer our employees, including the 401(k) Plan, and we intend to defend our company vigorously against these allegations.”

Intuit Settles

In Rodriguez v. Intuit Inc., originally filed in October 2023 in U.S. District Court for the Northern District of California, plaintiff Deborah Rodriguez and Intuit Inc. agreed to a settlement, which was approved by the court on Friday. The amount of the settlement agreement was not stated in the notice.

Rodriguez had claimed that the firm reallocated forfeited funds for its own benefit, to the “detriment of the plan and its participants.” The initial complaint cited an example from 2021, when Intuit allocated $74,000 of forfeited funds to pay part of its plan expenses that totaled $975,000 that year, leaving a balance of approximately $140,000 in the forfeiture account.

U.S. District Judge P. Casey Pitts ruled in August 2024 that the lawsuit validly alleged that Intuit breached its fiduciary duties of loyalty and prudence under ERISA and that Rodriguez pleaded sufficient facts to support her claim that “the plan as a whole was damaged.”

Pitts also ruled that Rodriguez’s argument had provided a plausible interpretation of Intuit’s plan document as prohibiting the use of forfeitures to offset anything other than Intuit’s safe harbor matching contributions and profit-sharing contributions.

However, Pitts found that Rodriguez failed to show that Intuit functioned as a fiduciary, arguing that it functioned as a settlor. Pitts also found that using forfeitures toward reducing employer contributions is not a fiduciary breach and that Rodriguez failed to plead damages.

Rodriguez is represented by Hayes Pawlenko LLP.