US Foods faces class action over misappropriated retirement forfeitures

CHICAGO (CN) — A group of US Foods Inc. employees filed a class action Thursday after the company used 401(k) forfeitures to reduce its own plan contributions, and then tried to retroactively change the plan to skirt liability.

In a 29-page complaint filed in the Northern District of Illinois, the class of employees says the food distribution company ignored its own retirement plan guidelines and used plan assets to offset employer contributions. Under the Employee Retirement Income Security Act of 1974, retirement plans must have a written plan document.

“That document is not advisory. It is the plan rulebook,” the class wrote in the complaint. “It binds the fiduciaries who administer the plan, controls the use of plan assets, and protects participants’ rights. A fiduciary’s refusal or failure to follow the written plan document violates ERISA.”

When plan participants leave a company before fully vesting in employer contributions, they typically forfeit the nonvested portion of those funds. According to the complaint, US Foods’ retirement plan “impose a simple hierarchy: forfeitures must be applied first to reduce [p]lan expenses; only after [p]lan expenses are paid in full may forfeitures be used to reduce US Foods’ employer-contribution obligations.”

Instead of using those forfeitures to reduce plan expenses, however, US Foods used them to reduce its own employer obligations. “From 2020 through 2024 alone, US Foods used at least $13,685,000 in forfeitures to reduce employer-contribution obligations while the Plan reported at least $7,331,000 in Plan expenses,” plaintiffs wrote in the 29-page complaint.

A representative from US Foods Inc. declined to comment on the pending lawsuit.

When US Foods realized the issue, it tried to preserve those gains by retroactively amending the plan document.

Plaintiffs noted in the complaint that the retirement plan’s long amendment history made US Foods’ wrongdoing all the more glaring. Over the years, the company amended hardship withdrawal rules, contribution limits, vesting-service rules, compensation definitions, profit-sharing contributions, distribution options and other plan features.

The amendments did not address forfeitures until 2024, when “US Foods adopted Amendment Eight to the Plan Document. Amendment Eight provides that forfeitures shall retain their character as Employer Contributions and be applied as credits against future employer contributions unless US Foods elects to pay employer contributions without offset. But US Foods did not just attempt to amend the Plan Document going forward. Instead, US Foods claimed in Amendment Eight that the new language about forfeitures was retroactive and effective on January 1, 2019.”

The employees reiterated that Amendment Eight was not a clarification or updated explanation of the plan. Rather, it was a confession.

“That backdating is not a cure. It is evidence of the breach and improper fiduciary conduct,” plaintiffs wrote in the complaint. “US Foods knew its conduct violated ERISA and the Plan Document. So, US Foods tried to change the language and make the change retroactive. This is evidence of an evil mind.”

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