Trader Joe’s did not violate federal employee benefits law when it used millions of dollars left behind in its 401(k) plan to reduce future company contributions, a federal judge in Boston ruled Monday.
U.S. District Judge William G. Young sided with the grocery chain in a lawsuit brought by former employees who said the practice violated the Employee Retirement Income Security Act, or ERISA. The workers alleged that Trader Joe’s applied more than $37 million in forfeited contributions toward amounts the company otherwise would have put into the plan between 2019 and 2023.
The money came from employer contributions that workers had not yet earned the right to keep when they left Trader Joe’s before becoming fully vested. The former employees argued that those amounts should have been used to pay expenses that otherwise came out of participants’ retirement accounts instead of reducing the company’s own costs.
When a worker leaves before becoming fully vested, the unvested portion of an employer’s contributions can remain in the retirement plan. Depending on the plan’s terms, those forfeitures may be used for administrative expenses, future employer contributions or other authorized purposes.
ERISA requires the people responsible for managing retirement plans to act prudently and in participants’ interests. The former employees argued Trader Joe’s violated those duties by choosing a permitted use that lowered the company’s costs while workers continued paying plan expenses.
Trader Joe’s argued that its retirement plan expressly allowed the unvested contributions to offset future company payments. Young agreed, ruling that the company’s use of the money was permitted under the plan and did not breach the ERISA fiduciary duties asserted by the former employees.
Similar lawsuits have challenged how large employers use 401(k) forfeitures. Employees have argued that directing the money toward future company contributions benefits employers while participants continue covering plan costs. Companies have responded that their retirement plans expressly authorize that option.
In other forfeiture lawsuits, the U.S. Department of Labor has taken the position that plan fiduciaries may choose among uses authorized by the plan, including applying the money toward future employer contributions.
Federal judges have not treated these lawsuits uniformly. Some have dismissed claims when a retirement plan clearly allows forfeitures to reduce company contributions, while others have allowed cases to continue based on how plan managers chose among the permitted uses.
Young heard the dispute during a bench trial in May, where the judge, rather than a jury, decided the claims.
The former employees filed the lawsuit in January 2025 in federal court in Massachusetts. Their case also challenged other aspects of how Trader Joe’s managed the retirement plan and its costs.
The ruling resolves the workers’ challenge to Trader Joe’s decision to apply more than $37 million in unvested employer contributions toward its future 401(k) obligations rather than participant-paid plan expenses.
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