UnitedHealth CFO named in ERISA lawsuit over ‘underperforming’ 401(k) funds

A recent development in a class-action lawsuit against UnitedHealth Group (UHG) uses emails from the company’s CFO as evidence that the insurance giant favored Wells Fargo in its retirement portfolio, against the best interest of UHG’s stockholders.

The lawsuit involves the fiduciary duties of UHG to its retirement plan members, which include approximately 200,000 current and former employees and beneficiaries. The case, Kim Snyder v. UnitedHealth Group is being heard in the U.S. District Court for the District of Minnesota, the state where UHG has its headquarters.

The law firm Sanford Heisler Sharp filed the suit in April 2021 on behalf of Snyder and enrollees of the company’s 401(k) plan. The claim was filed under the Employment Retirement Income Security Act (ERISA) and said that “United had breached its duty of loyalty and prudence in retaining the Wells Fargo Target Date Suite, one of the worst-performing target date options in the entire market,” according to a statement from Sanford Heisler Sharp.

Pressure from the C-suite

The new development concerns emails by UHG CFO John Rex, which the lawsuit said show Rex interfered with the company’s investment committee’s decision to drop Wells Fargo as a part of its retirement fund portfolio due to the fact that the Wells Fargo Target Fund Suite was underperforming. The new claims said Rex overruled a decision to remove the Wells Fargo funds and told the committee that due to the business relationship with Wells Fargo he felt it was important to keep them on as part of the company’s retirement fund.

The decision on the Wells Fargo funds were originally based on recommendations from an independent investment consultant and the UHG investment committee following a two-year analysis. That analysis ranked the Wells Fargo target funds lower than all alternatives under consideration.

Instead, Rex was appointed to the investment committee in 2017 and the plan to remove the Wells Fargo fund was cancelled.

A statement from Sanford Heisler Sharp quoted an email one of the parties which included the statement, “John Rex said that given what he thought was a growing relationship, he ‘stepped in front of the freight train’ last fall to save their [Wells Fargo’s] $5bn AUM [assets under management] business from leaving Wells.”

The new filings include that email and others, which the suit claims show the final decision was based on what was in the interest of UHG leadership, rather than in the interest of the plan members. “The CFO specifically called out his efforts in helping us retain the target date funds and how he feels slighted by [the] decision,” one of the emails between the parties said.

Officials from Sanford Heisler Sharp said the machinations at the top of the company violated the fiduciary duties of management under ERISA rules.

“With the rise of company sponsored 401(k) plans operating as employees primary or sole means of saving for retirement, this case presents an extreme example of why ERISA’s strict duties are necessary to protect employees’ savings from being used as a bargaining chip in pursuit of the company’s commercial interests,” said Leigh Anne St. Charles, Nashville managing partner and Discrimination and Harassment Practice Group Co-Chair at the firm. “Employers should take note of this case because it draws into sharp focus the question of what obligations plan fiduciaries owe to participants when presented with an inherent conflict of interest and must decide whether to prioritize the company’s or their employees’ financial bottom line.”

UHG’s response

UHG, for its part, originally asked the court to dismiss the case, which was denied in 2021. At that time, Judge John R. Tunheim of the U.S. District Court in Minneapolis found that the plaintiff had “plausibly pleaded imprudence by UnitedHealth and the committees, because she provided an adequate number of benchmarks demonstrating the target-date funds had chronically underperformed,” according to an article in Pensions and Investments.

In a statement published by the Wall Street Journal in August of this year, the company called the lawsuit “baseless.”

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“Enterprising lawyers may choose to pursue baseless claims, but nothing in the law supports using hindsight and apples-to-oranges comparisons to question good faith investment decisions made in the best interests of retirement plan participants,” the company said. “There is no basis for adding our CFO as an individual defendant, and the allegations against him are completely without merit.”

The company also claimed through its filings that its 401(K) plan had increased retirement savings by members by billions of dollars during the period in question.

The law firm representing Snyder said the emails prove that the company’s decisions were not in the best interests of the retirement plan members.

““Rather than addressing the full record in this case, United ignores much of it, including rampant irregularities indicating imprudence and disloyalty,” said St. Charles. “That the CFO of one of America’s largest companies would insert himself into the fiduciary process in this way is stunning.”

The next step in the case, according to St. Charles, is a hearing of oral arguments on February 6, 2024, concerning UHG’s current motion for summary judgement.