Hutchins v. HP Inc.

Background

Paul Hutchins, a former HP employee and participant in HP’s 401(k) Plan, filed a putative class action under the Employee Retirement Income Security Act (ERISA). The plan used a three-year cliff-vesting schedule for HP’s matching contributions. When a participant left HP before becoming fully vested, the participant forfeited the unvested matching contributions. The plan stated that forfeited amounts could be used to reduce employer contributions, restore previously forfeited benefits, pay plan expenses, or for another permitted use.

Hutchins alleged that HP used forfeited amounts between 2019 and 2023 to pay outstanding matching contributions that HP owed for prior years. He claimed that HP instead should have used those amounts to pay administrative expenses, which otherwise were charged to participant accounts. The First Amended Class Action Complaint asserted three ERISA claims: breach of the fiduciary duty of loyalty, breach of the fiduciary duty of prudence, and self-dealing.

The court had previously ruled that Hutchins adequately alleged that HP acted as a plan fiduciary when it allocated forfeited amounts. The court did not revisit that issue in this order. HP moved again to dismiss under Federal Rule of Civil Procedure 12(b)(6), which requires dismissal when a complaint does not state a legally sufficient claim. The court also granted Hutchins’s request to take judicial notice of the plan’s public Form 5500 filings, without accepting the truth of facts asserted in those filings, and considered the plan document because the complaint relied on it and its authenticity was not disputed.

Court’s Analysis

Fiduciary duties generally. The court rejected Hutchins’s theory that ERISA required HP to prioritize paying participant administrative expenses whenever forfeited funds could instead reduce HP’s contributions. ERISA does not require an employer to provide benefits beyond those promised in the plan. The plan gave HP “complete and unfettered discretion” to decide whether plan expenses would be paid by HP or from the plan trust. The court explained that HP acted as plan sponsor when making that expense-allocation decision and as fiduciary when implementing the allocation of forfeited amounts. The fiduciary provisions did not override the plan’s express reservation of discretion.

The court also relied on the history of defined-contribution plans using forfeitures to reduce employer contributions. Although the Treasury Department’s proposed regulation discussed that practice, the court noted that the proposed regulation was not binding and applied to plan years beginning on or after January 1, 2024, while Hutchins challenged conduct from 2019 through 2023.

Claim One—duty of loyalty. Hutchins argued that HP’s alleged conflict of interest plausibly showed disloyalty. The court held that a possible conflict alone does not establish a plausible breach of ERISA’s duty of loyalty. Hutchins did not allege that HP failed to provide participants the benefits promised by the plan, that the forfeited amounts reverted to HP, or that the administrative charges were excessive or unnecessary. Because HP’s conduct complied with the plan’s lawful terms, the court found the loyalty claim implausible. The court also rejected Hutchins’s argument that HP’s allocation of forfeitures was an impermissible reduction of accrued benefits.

The court granted HP’s motion to dismiss Claim One and dismissed that claim without leave to amend, finding that Hutchins had already received an opportunity to amend and that another opportunity would be prejudicial to HP.

Claim Two—duty of prudence. Hutchins alleged that HP used an imprudent and flawed process to decide how to allocate forfeited amounts. The court held that he did not provide specific facts supporting an inference that HP failed to conduct an adequate inquiry or that a proper investigation would have produced a different result. The court acknowledged that the duty of prudence can sometimes override a plan document, but found no particularized facts showing that HP acted imprudently here. The complaint did not allege that participants failed to receive their promised benefits or identify circumstances making HP’s plan different from other plans that permit forfeitures to reduce employer contributions.

The court granted HP’s motion to dismiss Claim Two and dismissed that claim without leave to amend.

Claim Three—self-dealing. Hutchins asserted that HP engaged in self-dealing under ERISA § 1106(b)(1). The court held that the prohibited-transaction provisions require a qualifying transaction. Relying on binding Ninth Circuit precedent, the court rejected Hutchins’s argument that § 1106(b) applies to non-transactional dealings with plan assets. The court also concluded that using plan assets to provide participant benefits, without an apparent risk of plan underfunding, was not the type of prohibited transaction covered by ERISA § 1106.

Because Hutchins did not identify a qualifying transaction, the court found that he failed to state a claim for self-dealing.

Disposition

Judge Beth Freeman ordered that HP’s motions to dismiss Claim One, Claim Two, and Claim Three were each granted. The court dismissed the First Amended Class Action Complaint without leave to amend.