Wells Fargo Hit With Class Action Over Target-Date Funds

Employee Benefits News examines legal developments that impact the employee benefits and executive compensation employers provide, including federal and state legislation, rules from federal...

By Jacklyn Wille

Nov. 23 — Wells Fargo & Co. enriched itself at its employees’ expense by including costly, in-house target date funds in its 401(k) plan, a new class action complaint alleges ( Meiners v. Wells Fargo & Co. , D. Minn., No. 0:16-cv-03981, complaint filed 11/22/16 ).

In the past year, several proposed class actions have targeted financial companies that include in-house investment products in their 401(k) plans. The employees bringing these suits have seen success in many instances, with courts refusing to dismiss cases against BB&T Corp., Putnam Investments LLC, Allianz Asset Management of America and Deutsche Bank.

This lawsuit, filed Nov. 22 in a Minnesota federal court, accuses Wells Fargo of intentionally boosting the 401(k) assets invested in the company’s own target date funds by defaulting participant contributions into those funds through a “quick” and “easy” enrollment process. The Wells Fargo funds consistently underperformed comparable target date funds, despite carrying fees 2.5 times higher, the suit alleges.

Similar challenges to in-house 401(k) investments are pending against American Century Services LLC, New York Life Insurance Co., Neuberger Berman Group LLC and Morgan Stanley.

The suit against Wells Fargo claims that the disputed target date funds—which provide a shifting balance of stocks, bonds and cash equivalents meant to align with a participant’s intended retirement date—included an unnecessary layer of fees that made them substantially more expensive than target date funds offered by competitors Vanguard and Fidelity.

Wells Fargo workers would have earned an additional $323 million in returns if the company had offered Vanguard funds instead, according to the lawsuit.

The lawsuit also claims that Wells Fargo’s own 401(k) plan became an “important source of seed money” for the company’s target date funds, accounting for about 28 percent of the funds’ total assets.

Wells Fargo’s 401(k) plan is one of the largest in the country, with more than 350,000 participants and about $35 billion in assets.

Wells Fargo is also facing a trio of lawsuits over another investment in its 401(k) plan: the company’s own common stock. Those lawsuits, filed over a three-week span in October, followed news that Wells Fargo employees had been secretly signing customers up for unauthorized accounts to meet internal quotas and keep profits high. All three lawsuits accused Wells Fargo of wrongfully exposing employees’ retirement savings to losses stemming from the scandal.

The latest lawsuit was filed by Lockridge Grindal Nauen PLLP, Elias Gutzler Spicer LLC and Cohen Milstein Sellers & Toll PLLC.

Wells Fargo didn’t immediately respond to Bloomberg BNA’s request for comment.

To contact the reporter on this story: Jacklyn Wille in Washington at jwille@bna.com

To contact the editor responsible for this story: Jo-el J. Meyer at jmeyer@bna.com

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