Forfeitures, Investments, and Health Plans Take Center Stage in E

Every so often, the employee benefits world produces a headline that sounds like it wandered out of a law firm conference room carrying three binders and a lukewarm coffee. “Forfeitures, Investments, and Health Plans Take Center Stage in E” is one of those headlines. The “E,” of course, is ERISA: the Employee Retirement Income Security Act, the federal law that governs many private-sector retirement and health plans in the United States. It may not have the sparkle of celebrity gossip, but for employers, fiduciaries, plan sponsors, workers, and benefits committees, ERISA is where the real drama lives.

In recent years, ERISA litigation has moved beyond the familiar script of “were 401(k) fees too high?” and into newer territory. Plaintiffs are challenging how employers use 401(k) forfeitures, how fiduciaries monitor investments such as stable value funds, and whether health plan sponsors are doing enough to oversee prescription drug costs, pharmacy benefit manager contracts, tobacco surcharges, and other plan expenses. In plain English: the benefits committee meeting just got a lot less sleepy.

This article breaks down why forfeitures, investments, and health plans have become such big ERISA litigation themes, what employers should learn from the trend, and how fiduciary governance can turn from a compliance chore into a practical risk-management tool. No magic wand required. Just better process, better documentation, and maybe fewer meetings where everyone pretends the fee report is “self-explanatory.”

What ERISA Actually Does

ERISA sets minimum standards for most voluntarily established private-sector retirement and health plans. It requires plan information to be provided to participants, establishes fiduciary responsibilities for those who manage and control plan assets, gives participants rights to sue for benefits and fiduciary breaches, and creates rules for plan administration. That is the official-sounding version.

The more human version is this: if an employer offers a retirement or health plan, ERISA asks, “Who is responsible, what process did they follow, and did they act in the interest of plan participants?” That question sits behind almost every modern ERISA lawsuit.

ERISA fiduciaries do not have to be perfect fortune tellers. They are not required to pick only investments that outperform every benchmark forever, negotiate every service fee down to pocket lint, or predict the next litigation trend before breakfast. But they are expected to follow a prudent process, monitor service providers, understand plan costs, document decisions, and act for the exclusive benefit of participants and beneficiaries.

Why ERISA Litigation Is Expanding

For years, retirement plan litigation largely focused on excessive fees, recordkeeping costs, investment underperformance, and share-class issues. Those cases are still alive and well, but the theories are changing. Plaintiffs’ attorneys have become more creative, and large plans remain attractive targets because they have more assets, more participants, and more potential damages. In the legal jungle, large 401(k) plans are not tiny garden lizards; they are steak dinners wearing compliance badges.

The newest wave of ERISA litigation has three major themes:

• 401(k) forfeitures: whether forfeited employer contributions should reduce employer contributions, pay plan expenses, or be allocated for participant benefit.
• Investment monitoring: whether fiduciaries prudently selected and monitored investment options, including stable value funds and other conservative options.
• Health plan governance: whether employers adequately oversee prescription drug costs, PBM contracts, tobacco surcharge programs, and health plan fees.

These issues share one common thread: fiduciary process. Courts often look less at whether a decision looks brilliant in hindsight and more at whether the fiduciaries had a thoughtful, documented, participant-focused process when they made it.

401(k) Forfeitures: Small Balances, Big Lawsuits

What Are Plan Forfeitures?

In a 401(k) plan, forfeitures usually arise when an employee leaves a company before becoming fully vested in employer contributions. For example, suppose an employer contributes matching funds to an employee’s account, but the employee leaves before satisfying the plan’s vesting schedule. The unvested portion may be forfeited and returned to the plan’s forfeiture account.

Historically, many plans used forfeitures to reduce future employer contributions. Others used them to pay administrative expenses or increase benefits for participants, depending on what the plan document allowed. IRS guidance recognizes that defined contribution plan forfeitures may generally be used to fund employer contributions or pay plan expenses, and proposed regulations have emphasized that plan documents should specify permitted uses and that forfeitures should be used within a required timeframe.

Why Are Forfeitures Being Challenged?

The newer lawsuits argue that plan fiduciaries acted imprudently or disloyally when they used forfeitures to reduce employer contributions instead of using them to pay administrative expenses that participants might otherwise bear. Plaintiffs often frame the issue as a loyalty problem: did the employer benefit itself at the expense of plan participants?

Plan sponsors respond that using forfeitures to reduce employer contributions has long been a common and permitted practice when the plan document allows it. They also argue that decisions about funding employer contributions can be settlor or plan-design decisions rather than fiduciary decisions, depending on the facts. That distinction matters because ERISA fiduciary duties apply to fiduciary functions, not every business decision an employer makes.

The practical lesson is not that every use of forfeitures is automatically dangerous. The lesson is that vague plan language, inconsistent administration, stale committee minutes, and “we’ve always done it this way” explanations are not great courtroom accessories. They look bad under fluorescent lighting.

What Employers Should Do About Forfeitures

Plan sponsors should review their plan documents and confirm that forfeiture provisions clearly allow the way forfeitures are actually used. If the plan allows multiple uses, the committee should understand the order of operations. Are forfeitures used first to pay plan expenses? To reduce employer contributions? To restore accounts? To make additional allocations? The answer should not depend on which person in payroll had the spreadsheet open that day.

Employers should also track forfeiture balances carefully and use them within applicable deadlines. A forfeiture account should not become the retirement plan equivalent of a junk drawer, full of mysterious leftovers from 2019 and one receipt nobody can explain.

Investments: The Stable Value Fund Enters the Spotlight

Investment litigation remains a central ERISA theme, but the target has shifted. For years, many lawsuits focused on actively managed funds, target-date funds, retail share classes, and recordkeeping fees. More recently, stable value funds have attracted attention.

Stable value funds are designed to provide capital preservation and steady returns, often serving as a conservative option in defined contribution plans. They are not the flashiest item on the investment menu. Nobody brags at dinner that their stable value fund had a sensible crediting rate. Still, in 2025, plaintiffs increasingly challenged whether certain stable value funds produced lower crediting rates than allegedly comparable alternatives.

The Benchmarking Problem

Stable value claims often turn on comparisons. Plaintiffs may point to other conservative investments and argue that the challenged stable value fund underperformed. Defendants may respond that the proposed comparators are not truly comparable because they differ in risk, liquidity, guarantees, fees, wrapper contracts, duration, or investment structure.

This is where fiduciary process becomes critical. A benefits committee should be able to show that it reviewed performance, fees, risk, objectives, and available alternatives. A fund does not become imprudent simply because another product performed better over a selected period. But fiduciaries should be able to explain why the option remained appropriate for the plan and its participants.

What the Supreme Court’s Cornell Decision Means

The Supreme Court’s 2025 decision in Cunningham v. Cornell University also matters for ERISA litigation. The Court held that plaintiffs bringing certain prohibited transaction claims do not have to plead around statutory exemptions at the outset; instead, exemptions are affirmative defenses. For plan sponsors, this may make early dismissal harder in some cases and may increase the importance of documentation, fee benchmarking, and service provider review.

That does not mean every ERISA complaint will succeed. It does mean employers should expect plaintiffs to test pleading standards and push more cases toward discovery. In ordinary business language: if your fiduciary file is a mess, clean it before someone else gets paid to read it.

Health Plans: The New Fiduciary Frontier

For a long time, many employers treated retirement plan fiduciary governance as the main ERISA litigation risk. Health plans often received less committee attention, partly because health benefits are complicated, partly because vendors handle many operational details, and partly because everyone quietly hoped the pharmacy contract would explain itself. Spoiler: it usually does not.

Recent health plan litigation has challenged whether employers prudently managed prescription drug benefits and PBM arrangements. Plaintiffs have alleged that plan fiduciaries allowed plans and participants to overpay for certain prescription drugs because they failed to properly monitor contracts, rebates, administrative fees, formularies, specialty drug pricing, or spread-pricing arrangements.

Some early cases have faced standing challenges, especially where plaintiffs could not show a concrete injury tied to the alleged mismanagement. But even when cases are dismissed, the filings send a loud message: health plan fiduciary oversight is no longer background music. It is center stage, wearing a microphone.

PBMs, Drug Costs, and Fiduciary Oversight

Pharmacy benefit managers play a major role in prescription drug plans. They may negotiate with drug manufacturers, manage formularies, process claims, contract with pharmacies, and structure rebate arrangements. For employers, PBMs can be valuable partners. They can also be difficult to understand because contracts may include complex pricing terms, rebate language, administrative fees, and performance guarantees.

ERISA does not require employers to become pharmacy economists overnight. However, fiduciaries should understand enough to evaluate whether plan expenses are reasonable and whether service providers are being monitored. That may mean asking sharper questions: What compensation does the PBM receive? Are rebates passed through? How are specialty drugs priced? Are there conflicts of interest? How often are contracts benchmarked? Who reviews claims data? If the answer is “the vendor said it was fine,” that is not a governance strategy. That is a shrug in a suit.

Tobacco Surcharge Litigation

Tobacco surcharge lawsuits have also grown. These cases typically challenge wellness programs that charge higher premiums to tobacco users unless they complete a cessation program or meet a reasonable alternative standard. Plaintiffs may allege problems with notice language, timing, the availability of alternatives, or compliance with HIPAA nondiscrimination rules and ERISA fiduciary duties.

For employers, the key is not to abandon wellness programs. The key is to administer them carefully. Notices should be clear, reasonable alternatives should be meaningful, and employees should not need a law degree, a magnifying glass, and three cups of coffee to figure out how to avoid a surcharge.

The Compliance Playbook: Better Process, Fewer Surprises

ERISA compliance does not reward panic. It rewards process. The following steps can help plan sponsors reduce risk across forfeitures, investments, and health plans.

1. Read the Plan Document Like It Matters

The plan document is not decorative office furniture. It should describe how the plan operates, including how forfeitures are used, who has authority, how expenses are paid, and what procedures apply. If actual operations do not match the document, the employer may have both a compliance problem and a litigation problem.

2. Keep Strong Committee Minutes

Minutes should show what was reviewed, who attended, what materials were considered, what questions were asked, and why decisions were made. They do not need to read like a courtroom transcript, but they should be more useful than “The committee discussed investments. Meeting adjourned.” That kind of minute entry is less a record and more a cry for help.

3. Benchmark Fees and Services

For retirement plans, fiduciaries should periodically benchmark recordkeeping fees, investment expenses, managed account fees, and consultant compensation. For health plans, they should review broker and consultant disclosures, PBM compensation, claims administration fees, network arrangements, and prescription drug pricing terms.

4. Monitor Vendors After Hiring Them

Hiring a service provider is itself a fiduciary act, and monitoring does not end once the contract is signed. Fiduciaries should review performance, fees, conflicts, service quality, participant complaints, cybersecurity practices, and contract terms. Outsourcing work is allowed. Outsourcing responsibility completely is not.

5. Train Fiduciaries

Committee members should understand ERISA fiduciary duties, plan expenses, investment basics, health plan oversight, prohibited transactions, and documentation practices. Training does not need to be theatrical. Nobody has to wear a robe and shout “prudence!” But regular education helps fiduciaries ask better questions and recognize risk earlier.

Specific Examples That Show the Stakes

Consider a large employer with a 401(k) plan that has accumulated forfeitures. The plan document says forfeitures may be used to reduce employer contributions or pay plan expenses. For years, the employer automatically used the balance to reduce future matching contributions. Nobody documented why. If sued, the employer may argue the practice was permitted. Plaintiffs may argue the committee failed to consider whether using forfeitures to pay participant expenses would have been better for participants. The outcome may depend heavily on plan language, fiduciary authority, and documented process.

Now imagine a benefits committee reviewing a stable value fund. The fund has underperformed a plaintiff-selected benchmark for three years. A weak committee file says only, “Stable value fund reviewed.” A stronger file shows that the committee evaluated the fund’s objective, crediting rate, fees, wrap provider structure, liquidity protections, risk profile, participant usage, and alternatives. Same fund, very different litigation posture.

Finally, picture a self-funded health plan with a PBM contract renewed every three years. The employer receives reports but never reviews rebate arrangements, specialty drug pricing, or administrative compensation. If participants later allege overpayment for prescription drugs, the employer may face hard questions about what it knew, what it asked, and what it documented.

Experience Notes: What This Looks Like in the Real World

In practice, ERISA governance often fails not because people are careless, but because everyone is busy. Human resources is handling open enrollment, payroll is fixing contribution files, finance is watching budgets, legal is reviewing contracts, and the benefits committee is trying to squeeze a serious fiduciary discussion into a 45-minute meeting between lunch and another meeting called “Q3 Alignment Sync,” which sounds important and somehow means nothing.

The most effective plan sponsors tend to treat fiduciary governance as a routine business discipline rather than an emergency drill. They do not wait for a lawsuit headline to ask whether forfeitures are being used correctly. They keep a calendar. They know when investment reviews happen, when fee benchmarking happens, when health plan vendors are evaluated, and when plan documents need review. This simple rhythm makes a huge difference.

A good committee meeting usually has a few recognizable traits. First, the agenda is clear. The committee knows whether it is reviewing investments, approving plan amendments, evaluating fees, or receiving health plan cost data. Second, the materials arrive in advance. Fiduciaries cannot meaningfully review a 90-page investment report if it lands in their inbox seven minutes before the meeting with the subject line “FYI.” Third, the committee asks questions. Not performative questions. Real ones. Why did fees increase? Why is this fund still on watch? What changed in the PBM contract? How are forfeitures being applied this year?

The best fiduciaries are not necessarily investment experts or healthcare pricing wizards. They are disciplined decision-makers. They know when to rely on experts, but they do not treat experts like vending machines that dispense prudence. They ask advisers to explain assumptions, alternatives, and risks in plain English. They request follow-up when something is unclear. They document the advice they receive and the reasons they accept or reject it.

One practical experience many employers share is the discovery that health plan oversight is harder than retirement plan oversight. A 401(k) investment lineup can be benchmarked against fees, performance, asset classes, and peer groups. Health plan pricing is messier. Claims data may be incomplete. PBM arrangements may be opaque. Network discounts can sound impressive while revealing very little about actual cost. A vendor may proudly say it saved the plan millions, but the fiduciary question is: compared with what?

That is why employers increasingly need cross-functional benefits governance. HR understands employee experience. Finance understands cost. Legal understands fiduciary risk. Procurement understands vendor contracts. Consultants understand market benchmarks. When those groups work together, the plan sponsor has a better chance of spotting issues early. When they work in silos, the plan may run on assumptions, and assumptions are just lawsuits wearing comfortable shoes.

Another lesson from real-world governance is that small administrative habits matter. Keep a fiduciary file. Save reports. Track decisions. Calendar follow-ups. Review service agreements before renewal deadlines. Confirm that participant notices match legal requirements. Reconcile forfeiture accounts. Review health plan fee disclosures. None of these tasks feels dramatic. That is the point. Good fiduciary governance is mostly boring in the best possible way. It is the smoke detector of employee benefits: not glamorous, but extremely useful when things get hot.

Employers should also remember that litigation trends can evolve quickly. A practice that seemed routine five years ago may become the next plaintiff theory. That does not mean employers should operate in fear. It means they should build flexible governance systems that can respond to new risks. When forfeiture lawsuits surge, review forfeiture language. When stable value funds become targets, review monitoring procedures. When PBM litigation grows, review health plan contracts and cost controls. The goal is not to predict every storm. The goal is to keep the roof maintained.

Conclusion: ERISA Center Stage Is Not Going Dark

Forfeitures, investments, and health plans are not random ERISA side quests. They represent the next phase of employee benefits litigation, where plaintiffs test whether fiduciaries are actively managing plans or simply letting legacy practices coast. Retirement plan committees must understand how forfeitures are used, why investments remain in the lineup, and whether fees are reasonable. Health plan fiduciaries must pay closer attention to PBMs, drug costs, wellness program design, and service provider compensation.

The good news is that ERISA does not demand perfection. It demands loyalty, prudence, documentation, and a serious process. Plan sponsors that review documents, monitor vendors, benchmark fees, train fiduciaries, and document decisions will be better positioned than those that rely on habit and hope. Hope is lovely. It is not a fiduciary procedure.

As ERISA litigation continues to expand, the smartest employers will treat governance as an ongoing discipline. They will ask better questions, preserve better records, and understand that the benefits plan is not just an HR offering. It is a legal, financial, and employee-trust commitment. In other words, forfeitures, investments, and health plans are center stage nowand the audience is paying attention.