Wells Fargo faces lawsuit for allegedly mismanaging its 401(k) plan
High-level bank execs picked and retained 17 proprietary funds, many of which underperformed, the class action states.
A judge has denied Wells Fargo’s request to dismiss a class-action lawsuit that claims the mega bank mismanaged its more than $40 billion 401(k) plan.
Brought on behalf of participant Yvonne Becker in U.S. District Court for the District of Minnesota, the class-action lawsuit asserts that some high-level executives at Wells Fargo — who were named as the retirement plan’s fiduciaries — selected and retained 17 Wells Fargo proprietary funds, many of which performed below the benchmark that the bank had picked “as an appropriate broad-based market index for each Wells Fargo Fund.”
Becker further alleges that the Wells Fargo Funds included “newly launched funds that lacked a performance history necessary to evaluate them, and that the Wells Fargo Funds charged greater fees than similar non-proprietary funds.”
Michelle Yau, a partner at Cohen Milstein in Washington and chair of the firm’s Employee Benefits/ERISA practice group, who represents Becker and the other plaintiffs, told BenefitsPRO’s sister site ThinkAdvisor in a recent interview that she’s “glad to see” that Judge Donovan Frank, in denying Wells Fargo’s request to dismiss the case, “understood why the case matters.”
Yau said: “You have 350,000 current and former Wells Fargo employees who, for many of them, their only retirement savings is their 401(k) plan. … They don’t get to pick the funds in the 401(k) plan, so they’re relying on the fiduciaries of their plan to pick prudent and loyal options; and ERISA requires it.”
Wells Fargo’s plan had $48.2 billion in assets with 340,353 total participants as of year-end 2019, according to Judy Diamond Associates, a business unit of ALM Media (which is the parent company of BenefitsPRO and ThinkAdvisor). Assets in Wells Fargo’s plan increased by $8.3 billion from 2016 to 2019, the most recent year for which data is available, Judy Diamond’s research shows.
More allegations
The suit also asserts that because of the enormous size of the plan, Wells Fargo should have been able to obtain “superior investment products at very low cost but instead chose proprietary products to bolster their own salaries by increasing fee revenue and providing seed money to newly created Wells Fargo Funds.”
“Wells Fargo doesn’t have to have its high-level executives pick the funds for the plan,” Yau told ThinkAdvisor. “It decides to do that. It set up its plan so that the fiduciaries who pick the investment options are all high-level executives — their purpose in their day job is to maximize profits.”
Yau explained, “The problem is, when you’re managing a $50 billion plan and you pick Wells Fargo funds … you really have got to scrutinize your decision-making because of the vulnerability of a conflict of interest.”
Plaintiffs are seeking to have their losses restored that they suffered from being in funds that performed poorly, she said.
The next stage in the case is summary judgment and then trial, Yau explained, “which come up in pretty quick succession.”
Wells Fargo declined to comment on the matter.
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