Key facts
- A federal judge dismissed a lawsuit accusing United Wholesale Mortgage (UWM) of improperly using forfeited 401(k) contributions.
- U.S. District Judge Susan K. DeClercq ruled that UWM's use of forfeitures to reduce its own contributions was permitted under federal law and the plan's terms.
- The lawsuit alleged UWM violated ERISA by using forfeited funds to reduce company contributions instead of paying plan expenses.
- The judge found the plan's language permitting use of forfeitures for administrative expenses did not create an obligation.
- The court rejected claims of imprudence and prohibited transactions under ERISA.
- UWM's 401(k) plan had $149.5 million in assets and 7,231 participants as of December 31, 2023.
A federal judge has dismissed a lawsuit accusing United Wholesale Mortgage (UWM) of improperly using forfeited 401(k) contributions to reduce the company’s required contributions to its employee retirement plan. U.S. District Judge Susan K. DeClercq of the Eastern District of Michigan granted UWM’s motion to dismiss the case on Sept. 23, finding that the company’s use of the forfeitures was permitted under the plan’s terms and federal retirement law. Bloomberg Law first reported the news.
The lawsuit was originally filed in April 2025 by former UWM employees Kristopher Lapko, Alan Tucsok and Becky Forbush on behalf of themselves and other participants in UWM’s 401(k) plan. They alleged that UWM and its 401(k) committee violated the Employee Retirement Income Security Act (ERISA) by “improperly” using forfeited funds to reduce the company’s contributions instead of paying plan expenses.
Under the plan, employees who leave UWM before fully vesting forfeit the unvested portion of the company’s contributions. The plan says the committee may use forfeitures to “pay administrative expenses.” Any forfeitures not used for that purpose are to be applied to reduce UWM’s contributions.
The plaintiffs argued that UWM’s approach cost participants and the proposed class tens of millions of dollars and created a conflict of interest because UWM is both the plan sponsor and involved in administering the plan. They estimated potential cumulative losses of about $1.86 million.
DeClercq rejected the argument that the plan required forfeitures to be used for administrative expenses. The plan’s language says forfeitures “may be used” for those expenses, the judge wrote, rather than requiring that they be used that way. “ERISA’s duty of loyalty cannot convert its permissive language into an obligation,” DeClercq wrote.
The judge also rejected the plaintiffs’ claim that the committee acted imprudently by choosing to reduce UWM’s contributions rather than use the money for plan expenses. The plaintiffs did not provide sufficient facts showing that a different decision would have been required under ERISA’s prudence standard, the court said.
The court also found that UWM’s status as plan sponsor did not by itself create a prohibited conflict of interest. ERISA permits an employer to serve as both a plan sponsor and administrator, the judge said, although the plan administrator in this case was the UWM 401(k) Committee.
The plaintiffs also alleged that using the forfeitures to reduce UWM’s contributions constituted prohibited transactions under ERISA. The court disagreed, finding that the transfers were not commercial transactions and that the plaintiffs had not shown they were potentially harmful to the plan.
DeClercq relied in part on a 1984 Sixth Circuit decision, Holliday v. Xerox Corp., which held that an employer’s transfer of pension funds to reduce its own monetary obligations did not violate ERISA under the circumstances presented in that case. The filing acknowledged that other federal courts have reached differing conclusions about whether ERISA’s prohibited-transaction provisions apply to the use of retirement-plan forfeitures to reduce employer contributions. But because the case was in the Sixth Circuit, DeClercq said she was bound by its precedent.
Finally, the court dismissed the plaintiffs’ claim that UWM failed to properly monitor the 401(k) committee. Because that claim was derivative of the other fiduciary-duty claims, it could not survive after those claims were dismissed, the court said.
UWM’s 401(k) retirement plan had about $149.5 million in assets and 7,231 participants as of Dec. 31, 2023, according to the opinion.