Labor Department backs dismissal of SAS lawsuit

The Department of Labor has filed an amicus brief in a case against SAS Institute, urging the U.S. 4th Circuit Court of Appeals to uphold the dismissal of claims related to the company’s use of forfeited 401(k) contributions. The department argued that the plaintiffs’ theory of the case expands fiduciary duties under the Employee Retirement Income Security Act to actions considered settlor functions.

The case centers on a lawsuit against North Carolina-based SAS Institute Inc., an artificial intelligence and data company, in which former employees challenged the company’s handling of forfeitures in its defined contribution retirement plan. Under the plan documents, forfeited employer matching contributions are used to restore previously forfeited participant balances, with any remaining amounts available to reduce future employer contributions or pay plan administrative expenses.

The Department of Labor has taken the stance that choosing how to spend forfeiture funds is a settlor decision, not subject to fiduciary liability under ERISA. The U.S. District Court for the District of the Eastern District of North Carolina dismissed the case twice before plaintiffs appealed to the appellate court. The DOL’s brief argued that ERISA protects “contractually defined benefits” and participants have no contractual entitlement requiring plan fiduciaries to use forfeitures to pay administrative expenses.

Between 2018 and 2023, SAS primarily used the more than $4 million in forfeitures to offset future contributions, although it allocated more than $222,000 toward plan expenses in 2022. They require a prudent and loyal decisionmaking process, rather than mandating a particular outcome in every case.

The brief warned that adopting the plaintiffs’ theory would have broader consequences beyond the SAS case. According to the department, employers could respond by eliminating discretionary plan provisions that sometimes benefit participants or reconsider sponsoring retirement plans altogether due to increased litigation risk. This argument has been put forth in several other amicus filings by the department.

The U.S. Chamber of Commerce and the ERISA Industry Committee filed their own amicus brief supporting SAS and the district court’s dismissal of the case. They argued that the plaintiffs seek to impose liability for practices that Congress, the Department of the Treasury, the DOL, and plan sponsors have long understood to be permissible. The groups also argued the appeal raises broader issues affecting ERISA pleading standards and retirement plan administration.

As the case moves forward, the court’s decision could have implications for how employers design and manage their retirement plans, potentially leading to changes in the way forfeited contributions are handled. The department’s argument that preserving employer flexibility in plan design serves workers by encouraging the creation and maintenance of retirement plans may be a key factor in the court’s decision.

The Department of Labor’s brief argued that the case centers on a fundamental distinction in ERISA between employer settlor decisions and fiduciary decisions involving plan administration. They have taken the stance that choosing how to spend forfeiture funds is a settlor decision, not subject to fiduciary liability under ERISA. This distinction is important in understanding the implications of the case for retirement plans and the role of employers in managing these plans.

Information on ERISA and retirement plans, including guidance on fiduciary duties and plan administration, is available on the U.S. Department of Labor’s website. The department’s efforts to shape the law surrounding ERISA forfeiture lawsuits may have significant implications for employers and employees alike, affecting how they shift from saving to spending in retirement.