The nation’s largest wholesale lender United Wholesale Mortgage (UWM) is the target of a class action lawsuit that was filed April 28 in the U.S. District Court for the Eastern District of Michigan by former employees Kristopher Lapko, Alan Tucsok, and Becky Forbush, claiming violations of the Employee Retirement Income Security Act (ERISA).
The plaintiffs allege that the defendants, UWM, its Board of Directors, and its 401(k) Plan Committee, utilized the Plan’s forfeitures to benefit themselves. In a 401(k) plan, forfeitures occur when an employee leaves their job before their employer's contributions are fully vested. UWM employees become 100% vested after 5 years of credited service.
By reducing their future employer contributions to the Plan, the plaintiffs claim UWM violated ERISA’s fiduciary duties of loyalty and prudence, as well as fiduciary and party-in-interest prohibited transaction rules. Rather, the plaintiffs contend that the Plan forfeitures should have been used to pay Plan expenses that ended up being charged to their accounts.
UWM’s Plan is one of the larger retirement plans in the country, according to the complaint, with 7,231 participants and $149,463,886 in assets under management as of December 31, 2023. It ranks in the top 0.23% of over 730,629 retirement plans in terms of the number of participants and the top 0.80% of plans in terms of the value of its assets.
The “401(k) defined contribution plans, such as the UWM Plan, have become America’s primary retirement savings vehicle,” the complaint reads. “As with all defined contribution retirement plans that require participants to bear the costs of plan administration, the Plan participants’ retirement savings suffer when the Plan fiduciaries mismanage plan assets, when employers use Plan assets for their own benefit, or pay excessive plan recordkeeping and administrative (‘RKA’) fees.”
However, the allegations do not concern the compensation received by the Plan’s service providers and investment advisors, nor that the Plan Committee selected imprudent Plan investments.
More specifically, the plaintiffs allege that UWM:
a) Improperly utilized forfeited Plan assets to disloyally reduce future employer contributions for their own selfish interests;
b) Did not engage in a prudent process when deciding to use Plan forfeitures for the employer’s own benefit rather than to reduce Plan expenses;
c) Failed to monitor those responsible on the Plan Committee for allocation of Plan forfeitures;
d) Engaged in party-in-interest fiduciary prohibited transactions by enriching themselves through Plan forfeitures;
e) Engaged in fiduciary prohibited transactions by favoring their own accounts with Plan forfeitures.
The UWM-sponsored Plan is a defined contribution employee pension benefit plan under 29 U.S.C. § 1002(2)(A) and § 1002(34). Under the Plan’s document, the October 2023 Pre-Approved Defined Contribution Plan and Adoption Agreement, UWM has the authority to determine, through its Board of Directors, the number of members on Plan Committee, those responsible for the allocation of Plan forfeitures, and the appointment or removal of those members.
A UWM spokesperson responded to the claims with the following statement: "We are one of many publicly traded companies that have been sued by the plaintiffs’ bar challenging a long-standing practice of 401(k) plan sponsors. Our plan administration is consistent with decades of regulatory guidance that was reaffirmed as recently as 2023. We plan to vigorously defend this baseless claim."
Parties And The Plan
The UWM Plan is funded by a combination of wage withholdings by Plan participants and UWM's matching contributions, which get deposited into the Plan’s trust fund. UWM is obligated to match employee contributions, and for the year ending December 31, 2023, they matched 50% of the first 3% of a participant's eligible compensation deferred, up to $2,500.
The complaint includes a table that illustrates the amount the Plan and its participants lost as a result of Defendants’ using Plan forfeitures "almost exclusively for their own benefit from 2019 through 2023," as the former employees claim.
Plaintiff Kristopher I. Lapko worked for UWM from July 2017 to April 2023 as a Senior Account Executive and rolled out of the Plan in 2023. Plaintiff Alan P. Tucsok worked for UWM from September 2013 until May 2024, when he retired. He did not roll out of the Plan during employment. Also, plaintiff Becky Forbush was a Senior Account Executive at UWM from October 18, 2018 to July 20, 2022. She rolled out of the Plan in 2022.
The UWM Plan Committee chose Fidelity Investments Institutional Operations Company, Inc. (“Fidelity”) to provide Plan recordkeeping services during the Class Period.
Plaintiffs believe they have Article III standing to bring this action on behalf of the UWM Plan because they claim to have suffered actual injuries to their Plan accounts by not having forfeited Plan assets reallocated to their Plan accounts because UWM “disloyally and imprudently” reduced employer contributions “for their own benefit.”
Furthermore, plaintiffs claim those injuries diminished the savings in their retirement accounts in the Plan and reduced, dollar for dollar (and more when compounded) Plaintiffs’ retirement savings.
Having established Article III standing, the former UWM employees seek equitable remedies for losses suffered by the Plan under 29 U.S.C. §§ 1132(a)(2) and 409(a) on behalf of the Plan and for relief that sweeps beyond their own injuries.
The Plaintiffs and all participants in the Plan alleged they did not have knowledge of all material facts (including, among other things, the misuse and misallocation of Plan forfeitures) necessary to understand that Defendants breached their fiduciary duties and engaged in prohibited transactions until shortly before this suit was filed.
“Having never managed a very large 401(k) Plan, Plaintiffs, and all participants in the Plan, lacked actual knowledge of the misuse and misallocation of Plan forfeitures,” the complaint reads.
The plaintiffs claim fiduciary duties of prudence and loyalty, as well as the duty to refrain from self-dealing under ERISA, have been violated. According to the complaint, UWM:
1) is both the plan sponsor and plan administrator;
2) is faced with a conflict of interest in choosing between allocating plan assets toward offsetting its own contributions to the plan or defraying plan expenses that would otherwise be borne by plan participants;
3) fails to conduct any investigation as to which choice would be in the best interest of the participants; and
4) decides to allocate all or a portion of those plan assets toward reducing its own plan contributions because that choice best serves its own interests.
Plaintiffs argue that it would be in the best interests of participants to reduce employer contributions if there is a risk that UWM is financially unable to satisfy its matching contributions, but they claim: “There is no evidence that UWM had such financial inability.”
Rather, the plaintiffs assert that using forfeitures to “pay plan expenses” would be in their best interest because that would reduce or eliminate amounts charged to their accounts. But UWM decided to reduce its outstanding and unpaid contributions, which lowered its costs and thereby allegedly harmed the Plan by reducing assets and by causing deductions from participants’ accounts to cover expenses.
Relief Sought:
- Restoration of forfeited assets to the plan
- Disgorgement of profits earned from the alleged misuse
- Removal of plan fiduciaries who violated ERISA
- Appointment of an independent fiduciary
- Attorneys’ fees and costs
UWM was also recently targeted in a lawsuit by Ohio Attorney General Dave Yost, alleging the Michigan-based lender misled borrowers by misrepresenting the independence of mortgage brokers.
