Just this month alone, UnitedHealth has been facing a vast amount of public scrutiny. The health insurer, which has already had a tough year in the public eye since the killing of UnitedHealthcare CEO Brian Thompson late last year, was sued earlier this month by investors alleging misleading forecasts following Thompson’s death.
This month, UnitedHealth Group CEO Andrew Witty resigned abruptly on May 13 for “personal reasons.” Then it became public on May 15 that the company stock plummeted following a Wall Street Journal report that the insurer was under criminal investigation for possible Medicare fraud by the Justice Department, even though UnitedHealth released a statement, calling the WSJ’s reporting “deeply irresponsible.”
Now, UnitedHealth is facing a new lawsuit, Kotalik et al. v. UnitedHealth Group Inc. et al., filed by current and former employees on behalf of its 267,000 401(k) plan participants, who are suing the embattled insurer for allegedly using forfeited funds from departing employees to pay the employer contributions for plan participants, rather than using them to lower administrative expenses, violating the Employee Retirement Income Security Act.
Plan forfeitures are portions of an employee’s retirement account balance that are returned to the plan when they leave the company before becoming fully vested in the retirement plan.
The lawsuit, which accuses UnitedHealth Group of breaching its fiduciary duties under ERISA, was filed April 28 in the District Court of Minnesota, which is the headquarters of UnitedHealth. The plaintiffs in the lawsuit include Theresa M. Kotalik, who remains employed with UnitedHealth, and three former employees, including Joseph Clements, who worked at the company until 2020.
Similar to 401(k) lawsuits filed this month against other health care companies – Cigna and Kaiser Foundation Health Plan – UnitedHealth’s lawsuit alleges that the company used the funds to offset its own plan contributions, rather than using them to pay administrative costs for the plan, in violation of ERISA. From 2019 to 2023, UnitedHealth used the forfeited funds “exclusively” to pay the company match, according to the plaintiffs.
Since 2019, according to the complaint, UnitedHealth has reduced its employer contributions by more than $19 million by using forfeited funds, while failing to apply any of those funds toward administrative costs. When compounded, the complaint estimates that participants in the UnitedHealth 401(k) Savings Plan, which has more than $22 billion in assets, lost $25.6 million.
Using the forfeitures to reduce its contributions “benefitted” UnitedHealth by lowering its costs, but “it harmed the Plan, along with its participants and beneficiaries, by reducing the amount of assets the Plan otherwise would have received,” according to the lawsuit.
Over the last year, there have been a rash of retirement plan forfeiture lawsuits, which allege a company used assets forfeited by workers for its own financial gain. This recent spate of forfeiture suits began with a Department of Labor lawsuit against a tech company, which challenged how the plan sponsor used plan forfeitures.
The case was settled in 2023, however, the plan terms required using forfeitures to lower plan expenses before using them to reduce employer contributions, according to the DOL’s complaint.
“If these [forfeiture] cases are successful,” writes Fred Barstein, CEO, The Retirement Adviser University, “it could change the way most defined plans are run. “Initially thought of as a nuisance, plan sponsors and defense counsel are starting to take these cases seriously, as heavyweights like Jerry Schlichter [founder of Schlichter Bogard, a pioneer in legal action against 401(k) and 403(b) plan sponsors, on behalf of retirees and savers] are betting they will be successful.”
