Class action litigators who represent plaintiffs continued to primarily focus on challenges to ERISA fiduciaries’ management of 401(k) and other retirement plans.?According to?Gerald L. Maatman Jr., partner, Duane Morris LLP and chair of the firm’s class action defense practice team, some of the biggest ERISA issues over the last year included:?

How employers handled forfeited 401(k) contributions: Namely, class actions arguing that these forfeited funds from employees who left the company should be used to cover the administrative costs of an employee’s plan rather than reducing the employer’s future contributions.??

Environmentally and socially conscious investing (ESG investing) in relation to 401(k) plans.
We talked further with Maatman, co-author of the ERISA Class Action Review, who has defended some of the largest workplace class actions ever filed in the United States.?

Q:?Will?class action litigation under ERISA continue to be a hot-ticket litigation item in 2025?

Gerald Maatman:?Yes, undoubtedly. One measure is how the plaintiffs’ class action bar approaches these sorts of lawsuits – file it, certify it, and monetize it (via a class-wide settlement). The plaintiffs’ bar did quite well in this respect over the past twelve months. Certification rates approximated 67% (down just a little from the two previous years), which is among the highest certification rates in any area of law. Likewise, one measure of this success is the figure for the top 10 ERISA class action settlements – in 2024, that total approximated $413 million.

Q. How can employers handling forfeited 401(k) contributions avoid litigation??

A:?Carefully! Best practices and risk mitigation strategies include use of?plan provisions that detail the permitted or mandated uses of forfeitures; removal of plan language as to discretion regarding the use of forfeitures; use of provisions that specify that forfeitures must first be used to reduce employer contributions, and then, if any forfeitures remain, those must be used to pay administrative expenses; and transparent communications with participants on the use of forfeitures – including clearly communicating the forfeiture process and how forfeitures are to be used – through the plan document, summary plan description and other plan communications.

Q: What is the impact of businesses socially and environmentally conscious investing (ESG investing) in relation to 401(k) plans??

A:?It has everyone taking notice given the American Airlines case.?Although no ESG funds were provided in the plans in that case and there was no claim that offering ESG funds in a 401(k) plan is, itself, a fiduciary breach, the opinion specifically states that “ERISA does not permit a fiduciary to pursue a non-pecuniary interest no matter how noble it might view the aim,” which arguably would prohibit plan fiduciaries from selecting ESG funds as core investment options.

Q: What types of cases will be the ones to watch in 2025??

A:?Watch for excessive fee cases, use of defined contribution plan forfeitures — the nonvested portion of a former employee's account balance — to offset employer contributions; and prohibited transfer claims.

Related: UnitedHealth agrees to $69M settlement in lawsuit over ‘low-performing’ 401(k) funds

Q: Will the Supreme Court decision in?Cornell?bring even more lawsuits?

A:?Yes!?Cunningham?v. Cornell University …?clarified the pleading standards for allegations of prohibited transactions under the ERISA. The Supreme Court held that to survive a motion to dismiss, plaintiffs need only plead the elements of a prohibited transaction, and that there is no need to affirmatively argue that statutory exceptions do not apply.

As the Supreme Court acknowledged, this ruling has the potential to unleash a floodgate of litigation over transactions that technically meet the definition of a prohibited transaction, but that are ultimately legal under one or more of the ERISA’s exceptions. The ruling in?Cunningham?substantially lowers the bar for plaintiffs alleging prohibited transactions and will likely lead to an uptick in filings.