Employment: Court dismisses ERISA claims against Northrop Grumman

Where plaintiffs argued defendants violated ERISA when they failed to apply forfeited Plan contributions to Plan expenses or employees’ account restoration, but the Plan did not require to first use forfeitures to restore participants’ accounts or pay administrative expenses before the forfeitures may be used to reduce the company’s contributions, the ERISA claims were dismissed.

Background

Plaintiffs, individually and on behalf all others similarly situated, claim, among other claims, that Northrup Grumman Corporation, the Northrop Grumman Benefit Plan Administrative Committee and John Does 1-10 failed to follow the Plan document for the Company’s defined contribution retirement plan, breached their fiduciary duties of loyalty and prudence and engaged in prohibited transactions when they failed to apply forfeited Plan contributions to Plan expenses or employees’ account restoration rather than fund their future employer Plan contribution obligations, all in violation of ERISA. Defendants filed a motion to dismiss.

Duties

Central to three counts whether Plan § 7.04 required defendants to first use forfeitures to restore participants’ accounts or pay administrative expenses before the forfeitures may be used to reduce the Company’s contributions.

Section 7.04 sates in relevant part: “To the extent not used in the Plan Year to restore Participants’ Accounts pursuant to Section 7.05 or to pay expenses in accordance with Section 16.10, the Plan Administrator shall apply Forfeitures to reduce Company contributions due for the Plan Year in which they arise. Any Forfeitures in excess of the amounts applied to reduce Company contributions and to restore Participants’ Accounts in such Plan Year shall be carried forward to restore Participants’ Accounts, to reduce Company contributions and to pay Plan expenses in accordance with Section 16.10.”

Based on the language and structure of the Plan document as a whole, the court concludes that § 7.04 does not mandate that forfeitures be used in any particular order, only that they be used for one of three listed purposes—pay administrative expenses, restore participant accounts or apply to employer contributions. The meaning of the phrase “to the extent that” has in its meaning both an element of the word “if” and also of quantity or measurement.

In other words, the phrase means that if forfeitures are not used up for the first two listed purposes then any remaining forfeitures can be used for employer contribution. While § 7.04 certainly implies that forfeitures may be used for the restoration of benefits and Plan expenses, it cannot be reasonably read to mean that forfeitures must be used for the first two purposes before they can be used for employer contributions.

For these reasons, using Plan forfeitures as defendants are alleged to have done in Count One did not violate the Plan, or specifically § 7.04. Nor did defendants breach their fiduciary duties of loyalty or prudence, as alleged in Counts Two and Three, when they used forfeitures for that purpose. Given that § 7.04 does not require that forfeitures be used as plaintiffs contend and there is no allegation that the plaintiffs have not otherwise received any of their promised benefits, plaintiffs have failed to allege facts which make plausible their claim that defendant breached their fiduciary duty of loyalty.

For the same reasons, plaintiffs have failed to allege facts that make plausible any claim that defendants engaged in conduct that no reasonably prudent ERISA fiduciary would conclude was permissible and consistent with their fiduciary duties, and therefore failed to state a claim for breach of the fiduciary duty of prudence.

Anti-inurement provision

Plaintiffs claim that defendants breached ERISA’s anti-inurement provisions when they used forfeited funds to satisfy their employer contributions rather than pay administrative expenses. The court disagrees.

Making employer contributions required under a Plan is an obligation owed to plan beneficiaries necessary in order to supply the promised benefits to Plan participants. When the employer here, Northrup Grumman, used Plan assets to pay its employer contribution obligations to Plan beneficiaries, with funds permitted to be used for that purpose, those funds were therefore used for and “never held for any other reason than [] provid[ing] benefits to participants in the plan and their beneficiaries . . .”.

Prohibited transactions

Plaintiffs claim that defendants engaged in prohibited transactions in violation of ERISA. However, for reasons similar to those pertaining to the anti-inurement claim, plaintiffs have not alleged that any of the forfeited assets were removed from the Plan or were used in a type of “transaction” necessary to impose liability under 29 U.S.C. § 1106. They have therefore failed to allege facts that make plausible their anti-inurement claim.

Monitoring

A failure to adequately monitor claim is “wholly derivative” of fiduciary duty claims in ERISA actions, and therefore, cannot survive once the fiduciary duty claims are dismissed. Because plaintiffs have not stated a claim for any of the predicate causes of action, their monitoring claim likewise fails and must be dismissed.

Defendants’ motion to dismiss granted.

Garner v. Northrop Grumman Corporation, Case No. 1:25-cv-00439, Dec. 4, 2025. EDVA at Alexandria (Trenga). VLW 025-3-500. 11 pp.