The District Court for the Eastern District of California recently ruled that a frozen 401(k) plan unreasonably refused to distribute the portion of a participant’s account attributable to his own contributions while he was facing various misconduct-related claims by his employer after termination. The participant sued the plan in district court after several unsuccessful requests for a distribution and motioned for summary judgment on his benefits claim. As justification for its refusal to distribute the participant’s benefits, the plan argued that the employer was entitled to rescind contributions it made to the participant’s account because of a “mistake of fact.” The assertion was that if the employer had known about the participant’s alleged misconduct, it would have terminated the participant and not made contributions to his account. The district court determined that the mistake-of-fact argument could not justify withholding distribution of the portion of the account attributable to the participant’s own contributions because distribution of that portion of the account was controlled by the plan’s anti-alienation provisions. The protections afforded by those provisions, which are required by ERISA, made the plan administrator’s decision unreasonable and an abuse of discretion, according to the district court. With regard to the portion of the account attributable to employer contributions, however, the district court determined the participant failed to demonstrate that the plan’s mistake-of-fact argument was unreasonable. The plan contained a provision that, in accordance with ERISA, provided for the return of employer contributions that were made as a result of a mistake of fact. Additionally, the court noted that the Court of Appeals for the Ninth Circuit, where the district court was located, recognizes the right of employers to rescind contributions because of a mistake of fact and to bring actions under ERISA to recover those mistaken contributions. As a result, the district court granted the participant’s summary judgment motion only with regard to the portion of his account attributable to his own contributions. This case demonstrates that mistake of fact arguments may provide a basis for refusing to distribute employer benefits but should not be used as a basis to withhold distribution of non-employer benefits. (Anderson v. Strauss Neibauer & Anderson APC Profit Sharing 401(k) Plan, ED Cal. 2010)