back to article HP sued over use of forfeited 401(k) retirement contributions

HP Inc has been accused of improperly using funds set aside for retired workers. The lawsuit [PDF], filed on behalf of plaintiff Paul Hutchins in a US federal court in northern California, claims HP has taken forfeited funds – money the IT giant pledged to contribute to workers' 401(k) pots but unclaimed because employees left …

  1. David 132 Silver badge
    Joke

    HP are being mean

    Only a matching contribution to 401(k)?

    IBM, for example, now pay for romper suits, finger paints, and Peppa Pig videos for all their new employees. Until they “retire” them on age grounds once they start school.

    1. Anonymous Coward
      Anonymous Coward

      Re: HP are being mean

      Most decent companies in the US don't have vesting periods on their 401k matches specifically because it's not worth the hassle. If I was offered a job at a company that had a vesting on the 401k match, I'd question how decent their other benefits are. Like is their medical insurance awful too.

      1. M.V. Lipvig Silver badge

        Re: HP are being mean

        All medical insurance for the folks not in the C suite has been horrible ever since ACA was passed.

        1. Anonymous Coward
          Anonymous Coward

          Re: HP are being mean

          The ACA was great as originally passed. I happen to live in Massachusetts which had already passed GOP governor Romney's "Romney Care", which the ACA was modeled on and was itself originally proposed by a GOP think tank. (Romney Care is still the system in MA because it's better than the original ACA.) The present ACA (outside of Massachusetts) has been by & large dismantled by the GOP because the Democrats were the ones who got a GOP idea passed at the National level, and the GOP is the party of whiners devoid of solutions who eat their own young ( and oppose their own schemes if the Dems take a liking to any GOP schemes).

    2. martinusher Silver badge

      Re: HP are being mean

      If the lawsuits are anything to go by IBM retires employees when they get to their late 30s. No biggie since the under-40s for the most part don't really have any notion of the future, its below their event horizon.

      Of course, come retirement age when they're looking at their somewhat thinned down Social Security (which they'll be able to claim in a few short years) they're going to find that working at the local hardware store is not only hard work for their age group but doesn't pay that well.

  2. Roland6 Silver badge

    > If there is merit to these claims, it would change the way most plans in this country run,"

    Seems a worth while change. Along with doing away with the vesting period. For defined contribution schemes.

    1. Cliffwilliams44 Silver badge

      The vesting period is to prevent the company contributing to short term job hoppers.

      But most company's vesting period is 1 year. 3 years is a bit much.

      1. Doctor Syntax Silver badge

        I thought the vesting period was to take on employees and then replace them without having to make any contributions.

      2. JoeCool Silver badge

        Why prejudice against "job hoppers"

        A week worked is a week worked.Show me the money.

        But that is just incentivizing a minimum employment term. What the lawsuit seems to be getting at is that the employer is ALSO using the vesting to reduce it's overall contributions to the plan.

        1. MrDamage

          Re: Why prejudice against "job hoppers"

          All I am asking, is for an honest weeks wage, for an honest days work.

      3. Roland6 Silver badge

        Yet (I assume) they still pay the rest of the remuneration package, or is that like training (remembering EDS) reclaimable from the job hopping employee…

        To me the person is simply deferred salary, thus, and especially in the case of defined contribution schemes, the employer contribution belongs to the employee from the outset.

        Years back, ie. when I started work in the 1980s, joining the company (defined benefits) pension scheme, required 2 years of service, ie. Getting a pension was a perk that had to be earned rather than as now - a mandatory component of an employees renumeration. The case gives a clear illustration of just how far behind and unenlightened the US is with respect to employee pay.

      4. Brad Ackerman
        FAIL

        Also, only matching 4% is incredibly weak. They're probably paying under market since their employees apparently don't mind the 3 year vest and 4% match.

      5. Jaybus

        I'm not so sure. Many companies in the US invest the 401k funds immediately with no vesting period.

    2. Anonymous Coward
      Anonymous Coward

      Perhaps Treasury, Labor, and/or IRS have it wrong. The quoted ERISA section seems clear to me. To allow companies to use "forfeited" funds for their own purposes incentivizes them to treat employees like chattel, getting them to leave or just firing them before the vesting period. Don't companies get tax advantages for offering a 401k plan? So they get the tax advantages of matching funds, then get to keep the forfeited match and use it for extra CEO compensation or whatnot? Nice scam, brought to you buy paid-for Congress members, no doubt.

      IMO forfeited funds should be used for paying expenses and fees, allowing unforfeited funds vested by current employees to grow bigger, faster. And there should be a limit as to how long vesting periods can be; one year seems a good max.

  3. Neil Barnes Silver badge

    Seems mean...

    Every company in the UK I've worked for has added its contributions as soon as I've joined the pension scheme.

    1. katrinab Silver badge

      Re: Seems mean...

      Yes, the law in the UK is that the contributions have to be added by the 19th of the following month.

      1. Doctor Syntax Silver badge

        Re: Seems mean...

        On the other hand, for defined benefits schemes HMRC instructed employers to take a contribution holiday because schemes were seriously over-funded.

        Then Brownomics introduced rampant inflation to increase the liabilities and low interest rates to decrease funds' ability to pay (interest declared here) and defined benefits schemes were closed to new members because they were now grossly underfunded. Whoever made the original decision would, of course, remain oblivious to this as HMRC pensions, like those of all Civil Servants (interest also declared here) was, at least back then, essentially a Ponzi scheme underpinned by the taxpayer.

        1. Neil Barnes Silver badge

          Re: Seems mean...

          Those of us on DB schemes curse that pension holiday... (interest declared here)

        2. katrinab Silver badge
          Flame

          Re: Seems mean...

          And the other thing was taxing dividend payments to pension funds, but not interest payments, which encouraged companies to load up with lots of debt, and all the problems that came from that.

        3. Roland6 Silver badge

          Re: Seems mean...

          >” because schemes were seriously over-funded.”

          Part of the problem was that many schemes were actually underfunded, Brown’s reforms to the calculation of a schemes liabilities exposed the extent of the underfunding, the rest compounded the underfunding…

        4. martinusher Silver badge

          Re: Seems mean...

          Its not really Brownomics because -- surprise! -- exactly the same thing happened here in the US. Companies like those pension pots but hate the long term liability they represent.

    2. McBread

      Re: Seems mean...

      The Land Of Oportunity (To Nickel And Dime Workers At Every Turn).

    3. Anonymous Coward
      Anonymous Coward

      Re: Seems mean...

      I'm in the US, and my experience is the same - every employer who offered a 401(k) contribution did not have a vestment period; it was mine immediately.

      1. M.V. Lipvig Silver badge

        Re: Seems mean...

        You must be a yongun then. 1980s, the telecom I worked for had a 5 year vest, 20 percent per year. I lucked out as the company was bought about 3-4 months after I was hired and enrolled, and all existing emoloyees were immediately vested as part of the deal. Next company had a 1 year vest, and I didn't really pay attention to it at my current company.

        1. Anonymous Coward
          Anonymous Coward

          Re: Seems mean...

          1980s and telecom probably means it was still an actual pension plan, not a crapass 401(k). They didn't even exist until the late '70s.

  4. doublelayer Silver badge

    Who benefits if this changes

    As far as I can tell, nobody stands to gain if this case decides that the forfeited amounts can't be used the way HP was using them. HP loses, because it needs to leave that money locked in the account until it finds something else it was allowed to spend it on, but just because HP has to leave the money there doesn't mean that anyone else could get it. This raises two questions in my mind. The first is why the people suing HP here are doing it, because presumably they wouldn't gain from having the rule changed. The second one is whether that will make it more difficult for them to prove that they were harmed, which is often a requirement to pursue a case.

    The best answer I have to this question is that, if HP was not allowed to use the forfeited money for most things, maybe they'd change the plan to avoid forfeiting it and people employed at that time would benefit from the new plan. While possible, this doesn't make much sense to me as HP would end up spending exactly the same amount of money if they lock it away or give it to employees, so nothing says that they have to stop using a vesting schedule if they lose this case. Maybe I'm missing something simple here.

    1. lglethal Silver badge
      Go

      Re: Who benefits if this changes

      From my (albeit brief) reading of the case, what the plantiff's want is that the money that is forfeited, enters the pot for all remaining employees benefits. Not that HP can effectively claim it back and pay less into the retirement pot.

      There are good grounds for this, since most retirement pots run on the verge of not having enough to pay all of the required contributions. So HP cutting it's own contributions by skimming these forfeited contributions, hurts everyone else in the fund. Making HP continue to pay the full amount of their contributions, and adding forfeited funds to the pot, would help the financial situation of the retirement funds, and ensure that they can actually make all of the payouts they need to.

      HP and the other funds, that skim this off the top, are basically just hurting their own retirement funds, but because those are usually spun off as a completely separate company, then that's fine by the companies. If it goes tits up, it's only the Employees who lose out, not HP itself, so that ok...

      1. doublelayer Silver badge

        Re: Who benefits if this changes

        I don't think it works that way because 401K accounts aren't a pension which pays out specific amounts. They are tax-advantaged individual investment accounts. An employee who contributes a certain amount can invest and withdraw from that money subject to certain legal requirements, and someone who put less into it simply has less to work with. Since there is no common pot, the forfeited funds can't be put in one unless they stop using 401K accounts altogether.

        1. lglethal Silver badge
          Go

          Re: Who benefits if this changes

          Ahh if that's the case then my apologies. I'm not familiar with 401k accounts specifically, only regular retirement style funds as practiced in the UK, Aus and the EU.

          If what you say is true, perhaps a better solution would be that the forfeited funds should be used to pay the fund management fees, so that everyone else can earn a little bit of extra interest (and HP keeping contributing what it's supposed to!). If it's anything like some of the retirement funds I have to deal with the Management fees chew up an excessive amount of the interest you actually earn from your investments...

          1. Cliffwilliams44 Silver badge

            Re: Who benefits if this changes

            The already can be used for this. As well as paying the matching funds to other employees.

            This looks to me like a lawsuit meant only to benefit the blood sucking lawyers.

          2. MachDiamond Silver badge

            Re: Who benefits if this changes

            "I'm not familiar with 401k accounts specifically, only regular retirement style funds as practiced in the UK, Aus and the EU."

            In broad terms, they are likely the same. The details are likely not understandable for the US when using common sense.

            If I were just entering the workforce now with a freshly laser printed degree, I'd not start a retirement savings account. The fees and penalties for touching that money before retirement can make it a net loss. I'd be happier to see a mortgage matching plan. Companies might want to consider that as people that own a home are more likely to stay put than those that rent. I expect that it all comes down to what the company might get in tax savings doing one thing over the other if both are useful to attract and retain the people they want to hang on to.

        2. JoeCool Silver badge
          Go

          Re: Who benefits if this changes

          What the lawsuit is getting at is that the un-vested contribs should be to the benefit of the employees, not the employer. If used to pay management expenses (which are pooled) that is effectively contributing to a shared pot.

        3. Roland6 Silver badge

          Re: Who benefits if this changes

          >” I don't think it works that way because 401K accounts aren't a pension which pays out specific amounts. They are tax-advantaged individual investment accounts.”

          So a 401K account is a pension scheme with only one member/beneficiary…

          1. doublelayer Silver badge

            Re: Who benefits if this changes

            "So a 401K account is a pension scheme with only one member/beneficiary…"

            Pretty much. There's more self-direction involved as well, as the single beneficiary gets to decide what they invest it in and how much they take out, subject to a variety of restrictions. As I understand all the options, I think it's comparable to the UK's SIPP accounts with an employer connection or Australia's Super funds.

            1. Roland6 Silver badge

              Re: Who benefits if this changes

              I was not being totally clear.

              I should have linked to the point: “ the money that is forfeited, enters the pot for all remaining employees benefits”

              As a 401k scheme is a single pot, there is only one remaining employing …

              However, having read a little more, I suspect the intent is not quite so direct. Basically, if the company has committed to paying in 4% of pensionable pay then they need to pay this into the pension scheme, they can’t use vested monies (already in the scheme) to reduce the amount they pay into the scheme. Thus the scheme will accrue vested monies which aren’t allocated to an individual. The intent seems to be that these monies effectively become a profits distribution across the schemes members.

      2. JoeCool Silver badge

        Re: Who benefits if this changes

        Could be leverage to get a better settlement on a related matter, like job termination.But fair question.

    2. Doctor Syntax Silver badge

      Re: Who benefits if this changes

      "The first is why the people suing HP here are doing it, because presumably they wouldn't gain from having the rule changed."

      Possible altruism.

      Probably lawyers.

      1. MachDiamond Silver badge

        Re: Who benefits if this changes

        "Possible altruism.

        Probably lawyers."

        I'll put a tenner down on lawyers.

  5. Jou (Mxyzptlk) Silver badge

    I hope they win against HP.

    From what I heard from LebenUSA and John Oliver the 401(k) was MEANT to be purely for the employees benefit, and it was expected to end up in a fund which pays reasonable interest. Corporations using it for other purposes was never the original intention which is, from my point of view, malpractice. Well, I'm on another continent, but such tiny steps towards better social security in Unites States of America are needed.

    You can, of course, correct me if I am wrong here.

    (I avoiding using the abbreviation USA in the first mention without clarifying what in means, since I don't want to accidentally blame the Ulster Scots Agency)

    1. Cliffwilliams44 Silver badge

      Re: I hope they win against HP.

      HP and other companies take no direct benefit from these forfeited funds. They can use them to offset employer contributions, which directly benefit current employees, or to offset management fees of the funds. This lawsuit is as baseless as it could be.

      They'd be better off suing that a 3-year vesting period is too long. 1 tear is the standard of most companies.

      Consider yourself corrected!

      1. katrinab Silver badge
        Megaphone

        Re: I hope they win against HP.

        Yes it does, in that they don't have to pay matching contributions for other employees who are entitled to them, because they can use the forfeited funds to pay them instead,

      2. JoeCool Silver badge

        Re: I hope they win against HP.

        " ... offset employer contributions"

        That is a financial benefit to HP. It will show up on the balalnce sheet.

  6. A. Coatsworth Silver badge
    Joke

    Nominative determinism

    Hewlett Packard

    Hayes Pawlenko,

    Paul Hutchins

    Makes sense, in an Onion-esque sort of way

  7. aerogems Silver badge
    Facepalm

    It's not enough that we get shitty 401(k) "retirement" plans in the US, or that companies will tend to lay off a bunch of people right before the vesting period, but now we have them basically gambling with the money that should be set aside for retirement programs. I already know the answer to this, but is there any depth that top executives won't sink to?

  8. Ribfeast

    Still boggles the mind that your retirement fund and health insurance are linked to your employer. Much prefer the Australian system of superannuation, where 10 or 11% of your wage is automatically put into your retirement fund and invested immediately. And if you put in more on top of that percentage, the gov matches it. And most jobs are advertised as wage Plus super.

    And health insurance is optional (although you get taxed for NOT having it). The medicare system is at least free, although the waiting lists can suck for some operations.

  9. darkrookie28

    Man must be nice to have enough money to have retirement accounts.

POST COMMENT House rules

Not a member of The Register? Create a new account here.

  • Enter your comment

  • Add an icon

Anonymous cowards cannot choose their icon

Other stories you might like