Judge dismisses UWM 401(k) forfeiture lawsuit under ERISA

U.S. District Judge Susan K. DeClercq of the Eastern District of Michigan dismissed a proposed class‑action lawsuit that accused United Wholesale Mortgage (UWM) of misusing forfeited 401(k) contributions to lower the company’s required employer contributions. The suit, filed in April 2025 by former employees Kristopher Lapko, Alan Tucsok and Becky Forbush on behalf of themselves and other plan participants, alleged violations of the Employee Retirement Income Security Act (ERISA). Plaintiffs contended that UWM’s 401(k) committee, which is permitted under the plan to apply forfeitures to administrative expenses or, if any remain, to reduce UWM’s contributions, instead used the forfeited funds to cut the employer’s share, allegedly costing the class tens of millions of dollars. DeClercq ruled that the plan’s language—stating forfeitures “may be used” for expenses—does not obligate the committee to do so, and that ERISA’s duty‑of‑loyalty cannot transform permissive wording into a mandatory requirement. She also found the plaintiffs had not presented sufficient factual evidence to show the committee’s decision was imprudent under ERISA’s prudence standard, and that UWM’s dual role as plan sponsor and administrator did not, by itself, create a prohibited conflict of interest.

The court’s decision hinged on a 1984 Sixth Circuit precedent, Holliday v. Xerox Corp., which held that an employer’s use of forfeited pension funds to reduce its own monetary obligations does not constitute a prohibited transaction under ERISA. DeClercq applied that precedent, noting that the forfeiture transfers were not commercial transactions and that the plaintiffs failed to demonstrate any harm to the plan. While acknowledging that other federal circuits have reached divergent conclusions on whether ERISA’s prohibited‑transaction provisions cover such forfeiture use, the judge emphasized that the Sixth Circuit’s authority controls outcomes within its jurisdiction. Consequently, the plaintiffs’ claims that UWM breached fiduciary duties, failed to monitor the 401(k) committee, or engaged in prohibited transactions were all dismissed.

UWM’s 401(k) plan, valued at roughly $149.5 million with 7,231 participants as of December 31, 2023, remains operational under the court’s ruling. The dismissal leaves the alleged $1.86 million in cumulative participant losses unaddressed, and no comment was obtained from UWM for this report. The case underscores the variability of ERISA interpretation across circuits, suggesting that similar lawsuits filed in other jurisdictions may yield different results. It also highlights the broader regulatory environment in which employers can serve simultaneously as plan sponsors and administrators, provided plan documents grant sufficient discretion.

⚡ Effects Interpreter