BMO Financial Next Up in Plan Forfeiture Legal Complaints

BMO Financial Corp., a division of North America’s eighth-largest bank by assets, was the subject of a complaint seeking class action status regarding the use of 401(k) plan forfeitures by its retirement plan committee.

The complaint filed Wednesday in the U.S. District Court for the Central District of California adds it a growing list of plan committees being accused of not properly using forfeited funds under the Employee Retirement Income Security Act. BMO, whose parent, the Bank of Montreal, is based in Canada, wrote via email that the company “does not believe that these claims have merit and will be vigorously defending against them.”

The suit was filed less than a week after a federal judge in the Northern District of California dismissed a similar lawsuit against Clorox Co.; the plaintiffs in that case were granted until November 12 to file a revised complaint with more specifics about the Clorox plan’s circumstances.

BMO has been added to a recent flurry of plan forfeiture lawsuits as the plaintiffs’ bar tests what some experts have described as a relatively common practice of using forfeited fees to pay down plan costs. The firm representing the plaintiff, John Shulak, is Haffner Law PC, which has filed other forfeiture suits, including one against Bank of America. Other firms hit with similar lawsuits include HP Inc., Intuit Inc., Qualcomm Inc. and Thermo Fisher Scientific Inc., the last of which had its case dismissed by the Southern District of California.

In Shulak vs. BMO Financial Corp., the plaintiff alleges that BMO and its benefits administration committee wrongfully used forfeited plan assets to reduce its employer contribution obligations, rather than for the benefit of participants. The plaintiff is seeking monetary damages for the alleged misuse, class action status for other participants in the plan at the time of the forfeiture uses, and dismissal of the plan committee members, among other requests for relief.

“Defendants’ allocation of forfeited fund assets to reduce its own employer contributions benefitted Defendants, but harmed the Plan and participants in the Plan, by reducing Plan assets, not allocating forfeited funds to participants’ accounts, and/or by causing participants to incur expenses that could otherwise have been covered in whole or in part by forfeited funds,” the complaint states. “By choosing to use forfeited Plan assets to benefit itself and not the Plan or the Plan’s participants, Defendants have placed its own interests above the interests of the Plan and its participants.”

The complaint claims that forfeitures were used to reduce company contributions of $1.28 million in 2023 and $1.18 million in 2022.

The plaintiffs allege a breach of duty under ERISA Rule 29 U.S.C. § 1104(a), by which a fiduciary must act in the sole interest of the participants and beneficiaries; Rule 29 U.S.C. §1103(c)(1), by which assets held in the plan must be used for the benefit of participants; Rule 29 U.S.C. § 1106, by which a fiduciary cannot use the plan for the benefit of a party in interest beyond the participants; and, finally, for BMO to not have properly monitored the plan committee’s work.

The BMO 401K Savings Plan had assets of $4.5 billion and 19,057 participants, as of the end of 2023, according to its Form 5500 filing.

In the Clorox case, as with others, the defendant argued that the use of forfeitures aligned with regulatory guidelines by going toward plan costs and that the use of such forfeitures was clearly laid out in plan documents.