Retirement plans have long subjected employer contributions to vesting schedules, rewarding tenure by increasing the participant’s ownership in those contributions in proportion to their years of service.
However, several law firms have recently challenged this long-standing and common practice, arguing that using forfeitures to offset employer contributions is not in the best interests of participants or beneficiaries, as ERISA requires.
What Are Forfeitures?
“Vesting” in a retirement plan means ownership, according to the IRS. More specifically, this means that workers vest, or own, a certain percentage of their account in the plan each year, depending on a timeline established by the plan. Amounts that are not vested — earned, by virtue of their hours or service — may be forfeited by employees when they are paid their account balance. Vanguard reports that more than half of the plans it administers impose vesting requirements on employer contributions.
Now, when a worker leaves prior to becoming 100% vested in those contributions, those “forfeited” account balances may, according to established regulatory guidance, be either (1) used to offset employer contributions, (2) applied to reduce plan expenses, or (3) reallocated to the remaining participants in the plan.
Committee Considerations
The litigation filed thus far has alleged that the decision on how to reallocate plan forfeitures by the plan fiduciaries was a fiduciary decision and not in the best interests of participants — even though the IRS allows plans to make this decision. In fact, this practice has been common among retirement plans for decades.
While these cases are still working their way through the courts, in view of how many plan committees routinely make decisions on the disposition of forfeitures, careful consideration on those determinations going forward would be prudent. As a result, retirement plan fiduciaries may want to consider the following:
Review the plan document to confirm how/if it says forfeitures are to be reallocated (some of the suits have alleged that plan committees have not followed the terms of the plan document).
If the plan document leaves the decision to the plan committee, in consultation with an ERISA attorney, consider amending the document to remove that decision from plan fiduciaries — either by spelling out a specific order of reallocation, or by leaving that decision to those not affiliated with the plan (say, the board, as a plan design decision).
Consider immediate vesting for eligible participants. Note that this has cost and communication implications. Recent research by Vanguard finds that vesting does not provide a systematic retention benefit, though there is a 2.5% recovery of employer contributions for the average plan.
Threats of financial penalties and legal liabilities heighten the need for proper compliance with the Employee Retirement Income Security Act of 1974 (ERISA). Let’s go over the basics of what it means to be a fiduciary in an organization’s retirement plan.
What is a Fiduciary?
In basic terms, a fiduciary is a person or group in a company that is responsible for the retirement plan and does what is best for the participants in the plan. There can be three different kinds of fiduciaries in a plan:
Named Fiduciary: This person or group is named specifically in the plan rulebook. There can be multiple people to handle different tasks such as investments and reporting.
Appointed Fiduciary: A named fiduciary is allowed to assign fiduciary responsibilities to another person such as an investment manager to handle monetary decisions.
Functional Fiduciary: This is someone that isn’t appointed as a fiduciary on paper, but steps into the role. Even if they aren’t officially listed on the plan rulebook, they legally become a fiduciary.
Fiduciary Obligations
According to ERISA, there are 4 main duties of a fiduciary:
Acting in the best interest of the retirement plan participants, not the fiduciary’s or company’s.
Making careful and knowledgeable decisions involving retirement plans.
Don’t put your eggs in one basket. Spread out investments to reduce risks.
Follow the plan rulebook unless it goes against federal guidelines.
In addition to these main duties, there are additional tasks assigned to plan fiduciaries. Reporting, keeping records, and handling claims are large responsibilities that can result in major penalties if not completed correctly. To begin, fiduciaries need to annually file a Form 5500 with the government to be transparent with plan performance. Failing to do this can include up to $2,670 per day from the Department of Labor as well as IRS penalties. Keeping records related to the plan as well as sharing these records with participants will be important for any potential legal disputes that arise. Any claims made by participants about their retirement plans must also be handled by the plan fiduciary.
Plan fiduciaries carry a big responsibility, and it’s important to operate fairly for the sake of the plan participants as well as know the regulations to mitigate any future liability issues.
How Legislation, Location, and Longevity Are Shaping Retirement Readiness
Retirement planning starts with numbers such as savings targets, contribution rates, and investment returns. These kinds of foundational metrics guide the structure of retirement strategies and inform plan design. Yet even the most precise calculations don’t exist in a vacuum. Factors like geography, public policy, and life expectancy function as contextual forces, offering mitigating variables that can shape how those numbers play out in real life. Plan sponsors have an opportunity to support more informed, context-aware decision-making by helping to address these broader considerations.
Legislation: Implications of Social Security Shortfall Projections
The latest Social Security Trustees Report moved up the projected depletion date for the combined Social Security trust fund reserves to 2034 — nine years away. Without legislative intervention, that could result in a reduction to roughly 80% of scheduled benefits, potentially signaling a broader planning challenge for today’s workers. Plan sponsors can help by encouraging participants to account for any potential variability in their future benefit amounts.
Sponsors aren’t expected to predict legislative outcomes in Washington, but offering ways for participants to model around uncertainty may help them make more resilient decisions. As such they can offer educational tools that incorporate different Social Security income scenarios, or that stress-test their retirement plans under reduced benefit assumptions to help provide employees with a clearer picture of how different eventualities could impact them.
Location: The Geography of Affordability
The cost of retirement can differ dramatically depending on where someone lives. In light of the accelerated projected depletion of the combined Social Security trust funds, GoBankingRates analyzed the price of a “comfortable” retirement — defined as twice the cost of living — in each state, excluding Social Security income. The most expensive state? Hawaii, with an annual cost of $186,062. The most affordable state, by comparison, was West Virginia, coming in at $64,715 per year. This geographic variability underscores the importance of personalized financial education that helps participants think through not only how much to save, but where their savings can go furthest.
Longevity: A Blind Spot With Real Consequences
Perhaps the most overlooked factor in retirement planning is longevity itself. A TIAA Institute and GFLEC study found that more than 60% of adults either don’t know or underestimate how long the average 65-year-old is expected to live. Underestimating life expectancy can lead to inadequate savings, overly aggressive withdrawal strategies, or early benefit claims that don’t match the realities of a 25- to 30-year retirement.
Longevity is rarely discussed with the same precision as contribution rates or investment returns, yet it quietly reshapes both of them. For plan sponsors, this represents an opportunity — not to project individual outcomes, but to reinforce planning frameworks that can accommodate a wider range of retirement durations. Supporting tools and conversations that help surface longevity assumptions can lead to more grounded, realistic participant strategies.
Retirement readiness isn’t just about helping employees accumulate assets. It’s about equipping them to make decisions within an evolving retirement landscape shaped by variables that aren’t always captured in a spreadsheet. Sponsors who support context-aware planning can empower participants to make better informed, more resilient choices for the future.
Saving in Your 20s, 30s, 40s and Up...What Changes?
No matter how old you are, it’s never too early (or late) to save money for retirement. Each decade comes with different goals, investment types, and risk factors, but understanding the difference can help you be prepared for when your retirement comes around.
Entering the Workforce: Your 20s
Your early career is going to be the most important time to save money in your retirement. With compound interest, that money that you put in your account in your 20s has about 40 years to accumulate, giving you a large return on your initial investment. Understandably, contributing a large portion of your paycheck is not attainable for most participants, but any contribution is better than none, and always aim to maximize your company’s match (it’s free money!).
Level Up in Your 30s and 40s
You’ve already started your career; you’ve moved up and began earning more money than in your 20s, which means it’s time to increase your contributions. Bump up your percentage, and, if feasible, turn on auto-escalation to increase your contributions year after year. If you are still working on repaying loans such as auto or student loans, revisit your investment options annually and re-evaluate your options.
Close to the Finish Line: Your 50s and Early 60s
The time has finally come to start planning your retirement, but not so fast! You still have time to boost those savings before you fully retire from the workforce. After 50, you have the opportunity to contribute catch up contributions up to $7,500 (as of 2025) on top of the $23,500 usual limit for a total of $31,000. As a bonus, if you are 60-63, you can access an even higher limit of $34,750 for a “super” catch-up contribution. If you maximize that extra bump, that is an extra $15,000 which could mean having an extra $100 per month for over 12 years.
No matter what age you are, saving for retirement is important for securing a financially stable future. Don’t know where to start? Reach out to your retirement plan’s representative for help!
Please access your retirement plan provider’s website or consult with your financial professional.
Feedback? Contact Deb Lander, CFP®, QKA, Director, Retirement Plan Services.
Content sourced from Retirement Plan Advisory Group (RPAG). This material was created to provide accurate and reliable information on the subjects covered but should not be regarded as a complete analysis of these subjects. It is not intended to provide specific legal, tax or other professional advice. The services of an appropriate professional should be sought regarding your individual situation.
The material is not a solicitation or an offer to buy or sell any security or other financial instrument or to participate in any trading strategy. Any opinions provided herein should not be relied upon for investment decisions.
Investment advisory services offered through RKL Wealth Management LLC. Consulting and tax services offered through RKL LLP. RKL Wealth Management LLC is a subsidiary of RKL LLP.
RKL LLP, 1800 Fruitville Pike, Lancaster, PA 17601
