Retirement groups seek dismissal of lawsuit

Retirement industry groups are urging the U.S. 4th Circuit Court of Appeals to keep a dismissal of an ERISA lawsuit against Northrop Grumman Corp. in place, arguing that the use of 401(k) forfeitures to offset future employer contributions follows longstanding federal guidance.

Business groups back the district court’s ruling

The amicus brief filed on July 14 by the U.S. Chamber of Commerce, the American Benefits Council and the ERISA Industry Committee supports the district court’s decision that the company’s plan documents give it discretion over forfeiture allocation. The filing notes that Department of the Treasury regulations, IRS guidance and congressional actions have recognized that defined‑contribution plans may apply forfeited assets to reduce employer contributions, cover administrative expenses or restore participant balances, depending on the plan’s terms. Allowing the plaintiffs’ theory would overturn decades of practice that employers have relied on.

According to the brief, the Northrop Grumman Savings Plan explicitly permitted administrators to choose among the permissible uses for forfeitures. Plaintiffs claim the company used roughly $70.8 million in forfeited amounts from 2019 through 2023 to cut future contributions instead of first restoring participant accounts or paying plan expenses, and they seek benefits beyond what the plan promises. The groups argue that such a shift would disrupt settled expectations for plan sponsors.

U.S. District Judge Anthony Trenga concluded that the plan language allowed the company to allocate forfeitures among restoring participant accounts, paying plan expenses or reducing employer contributions. The ruling was favorable to Northrop Grumman, and the brief’s authors contend that it aligns with the Department of Labor’s position, which has consistently sided with employers in forfeiture litigation.

Broader context of forfeiture litigation

The case arrives amid a wave of disputes over how forfeitures should be treated. Encore Fiduciary reported that 48 new lawsuits were filed in 2025 alone. The Department of Labor has filed amicus briefs in four forfeiture cases, arguing that using forfeitures to offset future employer contributions does not, by itself, violate ERISA. Those filings include appeals involving HP Inc., Siemens Corp. and Honeywell International, with the agency describing the Honeywell brief as its fourth forfeiture amicus brief. Two of the briefs were submitted to the 9th Circuit and two to the 3rd Circuit; none have yet been filed in the 4th Circuit.

The 4th Circuit hears appeals from district courts in Maryland, Virginia, West Virginia, North Carolina and South Carolina. Its decision in the Northrop Grumman case could influence how other plans handle forfeited assets, especially as more participants challenge the practice.

While the legal arguments focus on statutory interpretation, the practical impact on retirement savings is significant. If courts limit the use of forfeitures, plan sponsors might need to find additional funding sources to meet contribution obligations, potentially increasing costs for employers and affecting plan design.

Earlier debates over plan funding rules emerged after the 2006 pension reforms. Back then, courts also grappled with balancing employer flexibility and participant protections. The current dispute follows a similar pattern, where the regulatory framework permits a range of options but litigants push for stricter limits.

Nevertheless, the outcome remains uncertain. The 4th Circuit has not yet ruled on a forfeiture case, and its decision could either reaffirm the district court’s view or set a new precedent that reshapes employer practices. For now, the business groups maintain that the existing guidance provides a clear pathway for plan administrators to manage forfeited assets without violating ERISA.

Participants in the Northrop Grumman Savings Plan continue to await a final resolution, while the broader retirement community watches for signals that could affect the handling of forfeitures across the industry.

Employees hope for stability.