August 20, 2019

Tenth Circuit: No Forfeiture Under ERISA’s Nonforfeitable Provision Where Third Party Fraudulently Took Benefits

The Tenth Circuit Court of Appeals published its opinion in Foster v. PPG Industries, Inc. on Wednesday, September 5, 2012.

Plaintiff William Foster had an ERISA-governed 401(k) account (Plan) with his former employer, PPG. Foster and his wife were getting divorced so Foster moved out of his home. He did not notify the Plan of his change of address for over a year. In the meantime, his ex-wife fraudulently changed his Plan user ID and password and changed the address of the Plan to her P.O. box. She then withdrew the entire amount of the account. When Foster became aware of this by receiving a 1099-R form showing the withdrawals, he demanded PPG return the money as he had not authorized the withdrawals. PPG consulted with outside legal counsel and investigated Foster’s account. Foster told the Plan his ex-wife had made the withdrawals. PPG informed Foster they would not be replacing the money as they were not liable.

Foster sued the Plan under ERISA. After an administrative record was developed in the district court, the court remanded the case to the Plan Administrator, who denied Foster’s request for repayment. Foster went back to district court, arguing because the money had been paid to another, the money had been forfeited under 29 U.S.C. § 1053(a), which provides that retirement benefits are nonforfeitable when the participant reaches normal retirement age. The district court upheld the Plan administrator’s decision under an arbitrary and capricious standard of review.

The Tenth Circuit reviewed the Plan administrator’s decision under an arbitrary and capricious standard because the Plan had complete authority to determine benefits. Because the Plan administrator had a conflict of interest, the court considered that as a factor, but found no abuse of discretion. The court found no forfeiture occurred. 29 U.S.C. § 1002(19) defines “nonforfeitable.” The court stated that “[w]e read ‘unconditional’ in § 1002(19) to mean that any and all conditions precedent to the participant’s asserting a claim to his benefits have been met. We do not read it to mean that a participant is entitled to a fixed amount of benefits regardless of any and all later-occurring conditions, such as the theft of savings plan funds by a participant’s ex-spouse. . . .”

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