Judge allows UnitedHealth 401(k) forfeiture lawsuit to proceed

A federal judge has allowed key portions of a proposed class-action lawsuit against UnitedHealth Group over its use of 401(k) forfeiture funds to move forward.

U.S. District Judge Eric C. Tostrud ruled that participants in the company’s 401(k) retirement plan plausibly alleged that fiduciaries improperly handled millions of dollars in forfeited retirement-plan funds.

In a decision issued Monday, Tostrud denied most of UnitedHealth’s motion to dismiss claims that plan fiduciaries breached their duties of prudence and loyalty under the Employee Retirement Income Security Act, or ERISA.

Plaintiffs filed the lawsuit in April 2025 in the District Court for the District of Minnesota, where UnitedHealth is headquartered.

The question of forfeited funds

The lawsuit was brought by current and former participants in the UnitedHealth Group 401(k) Savings Plan, who allege that from 2019 through 2023 the company’s benefits committee used approximately $19.3 million in forfeited retirement-plan assets to reduce UnitedHealth’s own matching and profit-sharing contribution obligations rather than offset plan administrative expenses.

Employee plan forfeitures are portions of an employee’s retirement account balance that are returned to the plan when they leave employment before becoming fully vested.

ERISA dictates that forfeiture funds be used in ways that benefit the plan and its participants, and that they be used in accordance with the plan’s governing documents. Using those funds to pay the corporate match does not adhere to ERISA’s fiduciary duty, plaintiffs say.

“While Defendants’ decisions to use the Plan’s forfeitures to reduce its outstanding and unpaid contributions benefited the UnitedHealth by lowering its costs, it harmed the Plan, along with its participants and beneficiaries, by reducing the amount of assets the Plan otherwise would have received,” the lawsuit reads.

Under the plan, the administrative committee had discretion to use those forfeitures either to reduce employer contributions or to pay plan expenses.

Plaintiffs argued that because UnitedHealth was financially capable of making the same contributions without relying on forfeitures, the committee’s decisions reduced overall plan assets and cost participants by more than $25 million in potential retirement benefits through compounded investment growth.

UnitedHealth and the plan’s administrative committee sought dismissal of the lawsuit, arguing that participants lacked standing because the plan suffered no injury and that the challenged use of forfeitures was expressly permitted under the plan and longstanding federal guidance.

Tostrud rejected the standing argument, finding that the plaintiffs plausibly alleged an economic injury to the plan.

‘An imprudent process’

The judge also ruled that plaintiffs plausibly alleged breaches of ERISA’s fiduciary duties of prudence and loyalty. The complaint, he said, sufficiently alleged that the committee repeatedly made decisions that benefited UnitedHealth while potentially reducing plan assets available to participants.

“[The] amount, combined with the fact that the Committee made the same asset-reducing choice each year from 2019 through 2023, plausibly shows an imprudent process,” Tostrud wrote.

The court further allowed a derivative claim alleging that UnitedHealth failed to adequately monitor committee members responsible for administering the plan.

However, Tostrud dismissed claims alleging violations of ERISA’s anti-inurement provision and prohibited-transaction rules.

The judge found that the forfeited funds were ultimately used to provide plan benefits through employer contributions and that any benefit received by UnitedHealth was incidental rather than a prohibited diversion of plan assets.

“The decision to use forfeitures to reduce UnitedHealth’s contributions did not risk the Plan’s ability to pay promised benefits,” Tostrud wrote. “It served that purpose.”

The judge also dismissed any claims based on actions occurring on or after Jan. 1, 2024. The court noted that UnitedHealth amended the plan effective that date to require forfeitures to be used to reduce employer contributions rather than administrative expenses, and plaintiffs did not respond to defendants’ arguments concerning the amendment.

The case is one of dozens filed nationwide challenging how employers use forfeited retirement-plan assets. Tostrud noted that federal courts have issued at least 51 decisions involving similar claims but said he found no clear judicial consensus on the issue.

The lawsuit will now proceed on the fiduciary-duty claims relating to conduct before 2024.

© Entire contents copyright 2026 by InsuranceNewsNet.com Inc. All rights reserved. No part of this article may be reprinted without the expressed written consent from InsuranceNewsNet.com.

The post Judge allows UnitedHealth 401(k) forfeiture lawsuit to proceed appeared first on Insurance News | InsuranceNewsNet.