Citizens Financial Faces 401(k) Suit Over Funds, Fees and Forfeitures

Citizens Financial Group has been sued over its 401(k) plan, with plaintiffs targeting the plan's fund lineup, its fee levels and the handling of forfeited participant balances, Bloomberg Law News reported.

The complaint lands in a well-trodden corner of ERISA litigation. Suits over fund selection and recordkeeping fees have produced some of the largest retirement-plan settlements on record. The forfeiture claim — a newer and fast-growing theory — could change how sponsors use money left behind when workers quit before vesting.

What does the suit allege?

The plaintiffs challenge three familiar pillars of excessive fee litigation:

• Fund menu claims: the plan allegedly offered expensive or poorly performing investment options when cheaper alternatives were available.
• **Fee claims: ** the suit takes aim at what participants paid for recordkeeping and administration.
• Forfeiture claims: plaintiffs argue the bank shouldn't have used forfeited, non-vested balances to offset its own contributions.

The forfeiture theory has spread quickly through the federal courts since roughly 2023, with mixed results. Some judges have dismissed the claims, reasoning that ERISA doesn't dictate how forfeitures are spent. Others have let them proceed, and several employers have settled.

Why forfeitures matter now

Forfeited balances accumulate when employees leave before their employer match fully vests. Plans can use that money to reduce future employer contributions, pay plan expenses, or reallocate it to participants.

Workers' advocates argue that using forfeitures to trim employer contributions effectively lets the company fund its match with money that once belonged to departing staff. The defense bar counters that ERISA permits several uses of forfeitures and that nothing in the statute favors participants.

For HR and benefits teams, the practical exposure is real. A forfeiture ruling against a major sponsor could force plan committees to rewrite forfeiture provisions, revisit allocation policies and document their reasoning in committee minutes.

What should plan sponsors watch?

Committees that haven't reviewed their forfeiture language recently have a reason to schedule one. Fiduciary file documentation — showing why funds were selected and fees judged reasonable — remains the front line of defense in these suits.

Bloomberg Law News notes the case is part of a continuing wave of ERISA complaints against large employers over plan costs and design. Whether the Citizens Financial forfeiture claims survive dismissal will signal how far this theory extends across the 401(k) sponsor universe.