Amazon Employees File 401(k) Plan Forfeiture Complaint in Federal Court

Amazon.com Inc. and the administrative committee of its 401(k) savings plan have been served with the latest 401(k) forfeiture lawsuit—the largest company to be accused of mismanaging employee forfeiture funds among a growing list of defendants.  

In Curtis v. Amazon.com, filed in U.S. District Court for the Western District of Washington, participant Cory Curtis alleges that Amazon fiduciaries engaged in self-dealing by allocating millions in forfeited plan assets to offset the company’s own contributions, rather than reducing administrative fees for more than 20,000 participants, between 2018 and 2023. The plaintiffs were represented by law firm Terrell Marshall Law Group PLC. 

Amazon’s 401(k) plan has more than $17 billion in assets and more than 1.3 million participants, according to its most recent Form 5500 filing in 2022.  

The plaintiff allege that by using the forfeited funds toward future employer contributions, Amazon saved millions of dollars in contribution expenses.  

The plan was previously administered by Vanguard Fiduciary Trust Co., but assets were transferred to Fidelity Investments on January 7, 2020. As of the end of 2023, Fidelity is still the plan’s recordkeeper. Also in 2023, the plan incurred administrative expenses by paying Strategic Advisors—an affiliate of Fidelity—direct compensation to provide plan administrative services to the plan. 

Amazon’s plan document gives the plan fiduciaries discretion to use plan assets that have been forfeited by participants for one of three purposes: to (1) reduce future matching contributions; (2) pay plan administrative expenses; or (3) restore forfeited accounts, according to the complaint. 

The lawsuit alleges that Amazon continued to use forfeited funds to offset its company contributions instead of allocating forfeitures to pay the plan’s administrative expenses (such as recordkeeping fees, investment management fees and transaction fees) or returning the forfeitures back to eligible plan participants. 

Daniel Aronowitz, president of Encore Fiduciary, a fiduciary insurance firm unrelated to the case, notes that more than 30 other forfeiture lawsuits have been filed since 2023, including against other large plans like Qualcomm Inc., HP Inc. and Honeywell International Inc. He argues that the Amazon lawsuit shows that new plaintiff law firms are going to continue to enter the fray and “try to capitalize and monetize this potential liability.”  

Aronowitz further argues that the claim that Amazon fiduciaries did not act in the best interest of the plan is “particularly ludicrous,” because the recordkeeping fee for the plan is only $21, which Aronowitz says is one of the lowest fees in the U.S. The plan also offers Vanguard target-date funds for between three and four basis points, which he says is significantly lower than what Vanguard offers to other plans. 

“This is just plaintiff law firms trying to weaponize ERISA, and that’s what’s happening in the modern era with the surge of cases in the second half of 2024,” Aronowitz says. “We find [it] really offensive for Amazon plan fiduciaries to be accused of somehow harming participants. They’ve done everything to ensure the lowest possible fees for their participants.”  

The IRS reaffirmed its position in 2023 that 401(k) plan forfeitures can be used to pay plan expenses, reduce future employer contributions or to make an additional allocation to participants.  

The plaintiff in the Amazon case is seeking that the judge order the disgorgement of all assets and profits secured by the company as a result of the violations of the Employee Retirement Income Security Act, as well as remove fiduciaries who have breached their fiduciary duties, among other requests.  

Montana MacLachlan, an Amazon spokesperson, said in a statement: “While we’re still reviewing the details of this case, we believe these allegations lack merit. We look forward to proving that through the legal process.” 

Many forfeiture lawsuits have been dismissed by district judges in recent months, including those against BAE Systems Inc., Thermo Fisher Scientific Inc. and Clorox Co.   

Aronowitz argues that the Department of Labor is “asleep at the wheel” and allowing “regulation by litigation.” 

“The Department of Labor and the IRS have regulations that have blessed this practice [of allocating forfeitures to employer contributions] for years and years,” he says. “What needs to happen is they need to consolidate these cases before one judge and get one ruling.” 

Aronowitz believes it is time for the DOL to step in and confirm that using forfeited funds toward employer contributions is a proper way to handle the excess money.