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A former equity partner at Husch Blackwell LLP has filed a proposed class action alleging that the law firm unlawfully withheld and misused employee 401(k) contributions. The suit, which is pending in the U.S. District Court for the Western District of Missouri, accuses the firm of violating the Employee Retirement Income Security Act (ERISA) by holding funds deferred from employees' salaries and using them to cover operational costs. The former partner further alleges that the unlawful holding of funds deprived the employees of investment growth and put the plan at risk.
Husch Blackwell is a Midwestern-based law firm with multiple offices nationwide. The firm maintains a 401(k) retirement plan for about 400 plan participants, most of whom have contributions deducted from their paychecks as salary deferrals. Both ERISA and U.S. Department of Labor (DOL) regulations require employers to hold plan assets in trust for their participants. Accordingly, a business must forward withheld funds to the plan as soon as it can separate them from general operating funds, which is usually within a few business days for large law firms. Violations of these rules constitute both a prohibited transaction and a breach of fiduciary duty.
The former partner filed suit on behalf of all current and former employees who contributed to the plan since at least 2022. The suit focuses on accusations that the firm engaged in purposeful delays in remitting employees' deferred salary contributions to the plan. In many instances, the firm allegedly retained deferred funds for three months or longer before transferring them to the plan. The former partner also accused Husch Blackwell of commingling the deferred funds with its general operating accounts and using them to pay day-to-day expenses, including office rent and payroll. In doing so, the firm allegedly earned interest on, or at least used, the funds as a prohibited transaction under ERISA, in the form of impermissible self-dealing, when the funds should have been applied to the plan participants' investment accounts.
The complaint details specific instances of misconduct supported by internal payroll audits and participant statements. These incidents reportedly occurred while the law firm was experiencing cash flow problems due to expansion. Furthermore, the law firm failed to disclose the delays in its annual Form 5500 filings and in its participants' filings to obscure its actions. The complaint describes the failure to disclose the delays as a breach of the law firm's fiduciary duties of loyalty and prudence, exposing plan assets to its financial troubles.
Finally, the suit accuses Husch Blackwell of maintaining inadequate internal controls and failing to monitor contributions to the plan properly. The firm allegedly ignored DOL guidance about promptly remitting deferred funds and failed to implement automated safeguards common in large law firms.
The former partner is seeking class certification, injunctive relief concerning the processing of deferred salary contributions to the plan, restitution for lost investment income, and statutory penalties up to the full amount of the misappropriated funds.
This lawsuit is a reminder to smaller employer-sponsored plans of the need to maintain strict internal controls and the potentially disastrous penalties for delaying and misappropriating deferred funds. As many plan participants are mid-career attorneys with higher salaries, the lost investment opportunities resulting from the law firm's delays could yield a significant recovery for proposed class members. The suit also indicates increased litigation over plan administration and heightened DOL scrutiny of delayed contributions.
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