Federal Judge Dismisses UWM 401(k) Forfeiture Lawsuit

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A federal judge in Michigan has dismissed a proposed class action accusing United Wholesale Mortgage and its 401(k) committee of violating federal benefits law by using forfeited employer contributions to reduce UWM’s future contributions to its retirement plan.

U.S. District Judge Susan K. DeClercq granted UWM’s motion to dismiss on Sept. 23, ending the case at the district-court level. The dispute centered on what happens to employer contributions left behind when workers leave UWM before those contributions fully vest.

Three former UWM employees — Kristopher I. Lapko, Alan P. Tucsok and Becky Forbush — sued in April 2025 on behalf of themselves and a proposed class of participants and beneficiaries in UWM’s profit-sharing plan. They alleged that UWM and the plan committee breached duties imposed by the Employee Retirement Income Security Act, or ERISA, by applying forfeitures against employer contributions instead of using the money to cover plan expenses that participants otherwise paid.

DeClercq rejected that theory in a 20-page opinion and order in Lapko et al. v. United Wholesale Mortgage LLC et al., Case No. 2:25-cv-11216, in the U.S. District Court for the Eastern District of Michigan.

The plan language drove the ruling

Under the plan language described by the court, the UWM 401(k) committee “may” use annual forfeitures to pay administrative expenses. Forfeitures not used for that purpose “shall” be applied to reduce UWM’s contributions, the opinion said.

That distinction was central to DeClercq’s analysis. The former employees argued that the committee should have chosen the option that benefited participants by reducing expenses charged to their accounts. The judge concluded that ERISA’s fiduciary requirements could not transform a discretionary provision in the plan into a mandatory one.

“ERISA’s duty of loyalty cannot convert its permissive language into an obligation,” DeClercq wrote.

The court also dismissed the plaintiffs’ prudence claim. DeClercq found that the complaint did not plausibly establish that the committee’s decision to use forfeitures in a way expressly contemplated by the plan was imprudent under ERISA.

The plaintiffs separately alleged prohibited transactions, arguing that the use of forfeitures improperly benefited UWM. The court rejected those claims as well, relying in part on Sixth Circuit precedent. DeClercq cited the appeals court’s 1984 decision in Holliday v. Xerox Corp., which addressed an employer’s use of pension funds to offset contribution obligations.

DeClercq acknowledged that federal courts have not spoken uniformly on ERISA challenges involving plan forfeitures. But the UWM case was filed in Michigan, within the Sixth Circuit, and the district court said the controlling circuit precedent foreclosed the plaintiffs’ prohibited-transaction theory.

A nearly $150 million retirement plan

The size of UWM’s plan gave the dispute significance beyond a routine employment case. According to figures from the complaint recited in the opinion, the plan held $149,463,886 in assets and covered 7,231 participants as of Dec. 31, 2023.

Employees become fully vested in UWM’s employer contributions after five years of credited service, according to the court. When an employee leaves before becoming fully vested, the unvested portion is forfeited.

The plaintiffs alleged that UWM and the committee misused those forfeitures from 2018 through 2023. Their complaint claimed the practice cost participants tens of millions of dollars, while also presenting a calculation of potential cumulative compounded losses totaling $1,857,731. DeClercq noted that the plaintiffs had not supplied the underlying Form 5500 documents or explained their calculation sufficiently for the court to understand how they reached that figure. At the motion-to-dismiss stage, however, the court treated the pleaded amount as true for purposes of its analysis.

The ruling does not amount to a factual finding that every employer may use 401(k) forfeitures to reduce future contributions. It turns on UWM’s plan language, the claims pleaded in this case and precedent binding federal courts in the Sixth Circuit. That distinction is important because similar forfeiture lawsuits have produced differing analyses in other federal courts.

The final claim accused UWM of failing to monitor the 401(k) committee. Because that claim depended on the underlying fiduciary-breach claims, it fell with them. DeClercq granted the motion to dismiss and ordered the case dismissed.

Why the ruling matters to the mortgage industry

UWM is the nation’s largest home mortgage lender and operates exclusively through the wholesale channel, according to the company. A benefits case involving thousands of employees therefore carries unusual relevance inside the mortgage industry even though the dispute does not concern UWM’s lending practices or its relationships with mortgage brokers.

The decision also lands amid broader litigation over a common retirement-plan question: whether an employer that has discretion over forfeited contributions violates ERISA when it uses those funds to offset its own contribution obligations rather than reduce expenses borne by participants.

For UWM, the immediate result is straightforward. Every claim asserted in this proposed class action was dismissed at the trial-court level. The Sept. 23 order does not, by itself, establish whether the former employees will seek further review.