ERISA Bar Awaits Court Say on Forfeitures, Pensions, Smoker Fees

Benefits attorneys are ringing in 2026 with their eyes on the federal appeals courts, which are grappling with novel issues involving 401(k) forfeitures, health plan tobacco penalties, and pension de-risking transactions.

The new year could see multiple circuits release first-of-their-kind opinions in Employee Retirement Income Security Act cases. The US Court of Appeals for the Ninth Circuit is poised to be the first appellate court to address the explosion of litigation centering on 401(k) contributions forfeited by departing workers. The First Circuit has the chance to hand down the initial appellate ruling in a recent series of cases targeting employers that charge higher health-care plan fees to employees who smoke.

The Fourth Circuit is also primed to weigh in on an emerging legal theory targeting employers that remove workers from their pension plans by purchasing annuities from a controversial insurance company.

Here’s a look at the biggest ERISA questions facing the federal circuit courts in 2026.

Forfeitures Losing Steam?

Dozens of lawsuits challenging how employers handle the 401(k) contributions forfeited by departing employees have been filed in federal court over the past two years. Workers contend that companies violate ERISA when they put this money toward their mandatory plan contributions instead of using it to lower administrative expenses.

Workers notched early victories in cases against Qualcomm Inc., Clorox Co., and North American Lighting Inc., but most district courts weighing these allegations have sided with defendants and granted motions to dismiss.

With several appeals pending—including a closely-watched case led by HP Inc. employees in the Ninth Circuit—these cases might “run their course” over the next year as circuits “finally squelch them off,” said Christopher Rillo, a partner with Baker Botts LLP in San Francisco.

The US Labor Department has taken an unusual step toward killing off the forfeiture lawsuits by filing an amicus brief criticizing the workers’ legal theory in a pending appeal against HP. It’s signaled plans to file a similar brief supporting Siemens Corp. and Honeywell International Inc. in the Third Circuit.

This move by the department is important and may prove persuasive even though courts aren’t required to follow its reasoning, Carol Buckmann, co-founding partner of Cohen & Buckmann PC in New York, said.

“Courts are now issuing consistent decisions saying participants aren’t entitled to a windfall just because a plan has forfeitures; they’re entitled to the match the plan provides,” she said. “Now that the Department of Labor has filed an amicus brief in the HP appeal saying it doesn’t think using forfeitures to offset employer contributions is a violation of ERISA, I’m hopeful we will see an end to this litigation.”

A forfeiture appeal against Wells Fargo & Co. is pending in the Eighth Circuit, and Bank of America Corp. recently requested permission for a Fourth Circuit appeal. The HP appeal has been fully briefed, and oral arguments aren’t yet scheduled.

Tobacco Penalties

Another emerging line of ERISA cases centers on companies that require employees who smoke to pay extra fees to keep their health-care coverage.

Federal law authorizes these fees, but plans will run afoul of ERISA’s non-discrimination rule if workers aren’t given a reasonable alternative to avoid the charges, such as participating in a smoking cessation program. More than three dozen recent lawsuits accuse companies including Tractor Supply Co., Whole Foods Market Inc., and Nordstrom Inc. of flunking these requirements in various ways.

Courts have so far allowed cases to advance against Carle Foundation, Compass Group USA Inc., Performance Food Group Inc., and Missouri Gaming Co. But in November a Rhode Island federal judge dismissed a case challenging a $789 annual tobacco penalty charged by Bally’s Management Group LLC.

The Bally’s workers filed an appeal with the First Circuit, which could become the first appellate court to address this line of cases.

Pension Risk Transfers

Attorneys also are following a series of cases against large employers that have attempted to de-risk their pension plans by purchasing annuities from units of Athene Holding Ltd., an insurer and Apollo Global Management subsidiary that’s not named as a defendant in any of the cases. The lawsuits—which have spurred conflicting early decisions—say Athene’s risky offshore structure and exposure to private equity jeopardizes workers’ retirement benefits without compensating them for taking on additional risk.

Courts have greenlighted cases against Bristol-Myers Squibb Co. and Lockheed Martin Corp., while cases against General Electric Co., AT&T Inc., and Alcoa USA Corp. have been dismissed. Most of these early decisions centered on whether the plaintiff retirees have standing to sue, with courts coming to different conclusions about the severity of the injury they claim to have suffered.

“In order to have standing, the plaintiffs ought to be required to show that there’s some current threat to their benefits or an impending threat,” Buckmann said, adding that it’s a “very rare occurrence” for an insurer to fail.

The first appeals court to consider these issues is likely to be the Fourth Circuit, which is hearing an immediate appeal by Lockheed Martin. The case is poised to draw input from the Labor Department, which recently told the court it’s considering filing an amicus brief supporting Lockheed in the dispute.

Bristol-Myers also asked the Second Circuit to review the case against it.

If the retirees are successful in persuading courts to carefully scrutinize pension risk transfers, it might provide a disincentive for employers to continue offering defined benefit pension plans, Buckmann said.

“If we’re trying to keep companies from terminating defined benefit plans, it seems to me that we shouldn’t unduly restrict these pension risk transfers,” she said.