According to HousingWire, a federal judge in Michigan has dismissed a class action lawsuit filed against United Wholesale Mortgage that accused the company of misusing forfeited 401(k) contributions. The lawsuit, originally filed by three former UWM employees on behalf of themselves and other plan participants, claimed that the company violated retirement plan law by using forfeited funds to reduce its own required contributions rather than applying them to administrative expenses.
Under UWM's 401(k) plan structure, employees who leave the company before their retirement benefits fully vest lose the unvested portion of the company's contributions. The plan language states that forfeited funds may be used to pay administrative expenses, and any unused forfeitures are applied to reduce the company's contribution obligations. The plaintiffs argued this practice cost plan participants roughly 1.86 million dollars in cumulative losses and created a conflict of interest since UWM serves as both the plan sponsor and is involved in plan administration.
The federal judge rejected the core arguments presented by the plaintiffs. The court found that the plan's permissive language allowing forfeitures to be used for expenses did not create an obligation to use them that way, meaning UWM's approach complied with the plan terms. The judge also determined that the company's choice to reduce its own contributions rather than use the money for plan expenses did not constitute imprudent behavior under retirement law standards. Additionally, the court ruled that having UWM serve as both plan sponsor and administrator did not by itself violate federal requirements, since retirement law permits employers to hold both roles.
The judge also dismissed the plaintiffs' claim that using forfeitures to reduce company contributions amounted to prohibited transactions under federal retirement law. The court found that these transfers were not the type of commercial transactions that the law was designed to prevent, and the plaintiffs had not demonstrated the practice actually harmed the plan. In reaching this decision, the judge relied on decades-old precedent from a higher court in the same region, which had previously held that similar employer practices did not violate retirement law under comparable circumstances.
What I am seeing locally in the Bay Area and East Bay is that large employers constantly face scrutiny over how they manage employee benefit plans, particularly when compensation or contributions are involved. While this ruling doesn't directly affect the Bay Area market, it does reflect a legal environment where employers have significant latitude in managing retirement plan assets as long as they follow the plan documents. For those of us working with corporate clients, understanding these complexities around employee benefits remains important since they influence how companies structure their overall compensation packages and talent retention strategies.
