Northrup Grumman Wins Dismissal in 401(k) Forfeiture Complaint 

Northrop Grumman Corp. secured a district court dismissal of a complaint alleging the company improperly used all forfeited retirement plan funds to offset employer contributions. 

In Garner et al. v. Northrop Grumman Corp. et al., U.S. Senior District Judge Anthony Trenga, presiding in U.S. District Court for the Eastern District of Virginia, wrote that the company’s plan documents permitted the employer to use forfeiture funds at its own discretion.  

The plaintiffs contended that the plan documents stated that forfeiture funds should be used to restore participants’ accounts or pay down plan expenses before being used to reduce company contributions. They alleged that the company used the “entirety of the $70.8 million in forfeitures available for the years 2019-2023” to reduce its contributions, while using none of the forfeitures to pay down plan expenses or restore participants’ accounts. 

Specifically, the plan document states that “to the extent not used in the plan year to restore participants’ accounts … or to pay expenses … the plan administrator shall apply forfeitures to reduce company contributions due for the plan year in which they arise.”  

The plaintiffs argued that the plan’s phrase “to the extent not used” means the employer cannot apply forfeitures to reduce employer contributions unless all participant accounts have first been restored and all plan expenses for the year have been paid 

Trenga wrote that the plan document did not require the company to use forfeiture funds in any specific order. Instead, the employer had discretion to allocate the funds among the three listed purposes as it saw fit.  

“The phrase means that if forfeitures are not used up for the first two listed purposes, then any remaining forfeitures can be used for employer contribution,” Trenga stated. 

Since the plan sponsor did not need to use forfeitures for account restoration or paying down plan expenses first, it did not breach its fiduciary duties by using the funds to offset contributions, he ruled.  

The case marks another forfeitures-related victory for plan sponsors, a trend that has increasingly favored employers since the Department of Labor argued in favor of plan sponsors in July. 

Miller Shah LLP, Schlichter Bogard LLC and Tycko & Zavareei LLP represented the plaintiffs. Morgan Lewis & Bockius LLP represented the defendants.  

The Northrop Grumman Savings Plan had more than $39 billion in assets with approximately 155,000 plan participants at the end of 2024, according to its most recent Form 5500 filing.