Hutchins v. HP Inc.

Background

HP sponsors and administers a 401(k) plan, and the HP Inc. Plan Committee assists in managing it. HP matches 100% of the first 4% of eligible earnings that a participant contributes each pay period. HP’s matching contributions vest fully after three years of employment. If a participant leaves before becoming fully vested, the participant forfeits the unvested matching contributions.

The plan gives HP and the Committee discretion to use forfeited amounts to reduce employer contributions, restore previously forfeited benefits, pay plan expenses, or make another permitted use. Hutchins alleged that the defendants used the forfeited amounts solely to reduce HP’s contributions. He sued over the use of amounts from 2019 through 2023 and sought to represent plan participants and beneficiaries.

Hutchins asserted six ERISA claims: breach of the duties of loyalty and prudence, violation of ERISA’s anti-inurement provision, prohibited transactions, and failure to monitor fiduciaries. HP and the Committee moved to dismiss under Federal Rule of Civil Procedure 12(b)(6), arguing that the complaint did not state legally sufficient claims.

Court’s Analysis

The court rejected the defendants’ argument that Treasury authorities completely foreclosed Hutchins’s legal theory. The court concluded that one cited Treasury regulation did not apply to this stock bonus plan, and that a proposed regulation was not binding and applied only to plan years beginning on or after January 1, 2024. The court nevertheless considered those authorities persuasive when evaluating whether the allegations were plausible.

The court held that the defendants acted in a fiduciary, rather than merely plan-design, capacity when they selected how to use forfeited amounts. The plan’s adoption of several possible uses was a plan-design decision, but choosing among those options involved discretion and control over plan assets and therefore involved plan administration.

The court nevertheless found Hutchins’s fiduciary-duty theory too broad and implausible as pleaded. Hutchins effectively alleged that fiduciaries must always use forfeited amounts to pay administrative expenses instead of reducing employer contributions. The court reasoned that ERISA’s duty of prudence depends on the circumstances existing when the fiduciary acts, and that ERISA does not itself create an unconditional right to have plan administrative costs paid from forfeited amounts. The court stated that more particular facts or special circumstances might support a narrower claim.

The court also found the anti-inurement claim inadequately pleaded. The allegations showed that the forfeited amounts remained in the plan’s trust fund and were used to provide matching contributions to other plan participants. Although HP benefited by contributing less of its own money in the future, the court viewed that benefit as incidental to using plan assets to provide participant benefits. The court allowed amendment to allege additional facts showing that the amounts were reverted or diverted to HP or used to offset outstanding and unpaid obligations.

The court found that Hutchins had not plausibly alleged prohibited transactions. It concluded that reallocating forfeited amounts within the plan to provide matching contributions was not the type of commercial transaction covered by ERISA’s prohibited-transaction provisions, particularly because Hutchins did not allege that the reallocation placed the plan at special risk of underfunding. The court also stated that the failure-to-monitor claim failed because it depended on the other ERISA violations, which were not adequately pleaded.

Disposition

Judge Freeman granted HP Inc. and the HP Inc. Plan Committee’s motion to dismiss with leave to amend. The fiduciary-duty claims, anti-inurement claim, and prohibited-transaction claims were dismissed with leave to amend, and the failure-to-monitor claim failed because it was derivative of those claims. Hutchins may file an amended complaint addressing the deficiencies identified in the order within 30 days of the order’s date. The order did not decide whether a narrower amended version of the claims would succeed.