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Wells Fargo & Co. defeated a proposed class action claiming the company stuffed its $35 billion 401(k) plan full of expensive and poorly performing target-date funds affiliated with the company ( Meiners v. Wells Fargo & Co. , 2017 BL 176468, D. Minn., No. 0:16-cv-03981-DSD-FLN, 5/25/17 ).
The allegations of high fees and poor performance failed, a federal judge ruled May 25, because the investors didn’t provide a meaningful benchmark for comparing the Wells Fargo funds. The investors pointed to lower-fee funds offered by Vanguard, but the judge rejected this comparison after finding that the Vanguard funds had a different investment strategy than the Wells Fargo target-date funds.
The judge also said Wells Fargo can’t be held liable for “failing to choose the cheapest fund.”
This ruling—which doesn’t give the investors a second chance to make their case—is a rare and arguably unprecedented victory for a financial industry that’s been battered by lawsuits over the in-house mutual funds in their 401(k) plans. In the past year, judges have refused to dismiss similar cases against BB&T Corp., Allianz, Putnam Investments, Deutsche Bank, Franklin Resources, American Century, and Edward Jones. Principal Life Insurance Co. and New York Life Insurance Co. settled cases for $3 million each, and TIAA reached a $5 million settlement earlier this month.
In the past few years, only Great-West Life & Annuity Insurance Co. has escaped a similar lawsuit. In that case, the judge didn’t address the merits of the claims against Great-West. Instead, she found that the investors lacked standing to pursue their claims.
In ruling for Wells Fargo, the judge focused on the comparison between Wells Fargo funds and those offered by Vanguard and Fidelity. The investors didn’t allege that the Wells Fargo funds had “excessive or unreasonable” fees, the judge said. Rather, they alleged only that Wells Fargo’s fees were two-and-a-half times higher than the fees of Vanguard or Fidelity.
“Nothing in the complaint suggests that the Vanguard and Fidelity funds are reliable comparators, offer similar services, or are of similar size, nor does it contain facts showing that the Wells Fargo funds are more expensive when compared to the market as a whole,” the judge said. “Without a meaningful comparison, the mere fact that the Wells Fargo funds are more expensive than two other funds does not give rise to a plausible breach of fiduciary duty.”
Finally, the judge rejected the idea that Wells Fargo erred by using its own fund as the default investment option for its 401(k) plan. The investors challenged this move by saying Wells Fargo wrongly used their retirement savings as “seed” money for its funds, but the judge disagreed, saying there was no indication that Wells Fargo made this decision in its own financial self-interest.
Judge David S. Doty of the U.S. District Court for the District of Minnesota wrote the decision. Doty grants motions to dismiss in ERISA cases 54 percent of the time, according to data from Bloomberg Law’s Litigation Analytics. Last year, he dismissed a proposed class action by out-of-network medical providers that accused UnitedHealth Group Inc. of ERISA violations in connection with unpaid patient fees.
Cohen Milstein Sellers & Toll PLLC, Elias Gutzler Spicer LLC, and Lockridge Grindal Nauen PLLP represented the investors. Proskauer Rose LLP and Dorsey & Whitney LLP represented Wells Fargo.
To contact the reporter on this story: Jacklyn Wille in Washington at firstname.lastname@example.org
To contact the editor responsible for this story: Jo-el J. Meyer at email@example.com
Text of the decision is at http://www.bloomberglaw.com/public/document/Meiners_v_Wells_Fargo__Co_No_163981DSDFLN_2017_BL_176468_D_Minn_M.
Bloomberg Law’s Litigation Analytics supplied some of the data used in this story. For more information on how Bloomberg Law can help you visualize litigation trends, predict possible outcomes, and refine your strategy, learn more about Litigation Analytics.
Copyright © 2017 The Bureau of National Affairs, Inc. All Rights Reserved.
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