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."
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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 Treasury & Risk sister publication 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 yearend 2019, according to Judy Diamond Associates, a business unit of ALM Media (the parent company of Treasury & Risk). 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.
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 Wells Fargo restore the losses 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.
From: ThinkAdvisor
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Melanie Waddell
Melanie is senior editor and Washington bureau chief of ThinkAdvisor. Her ThinkAdvisor coverage zeros in on how politics, policy, legislation and regulations affect the investment advisory space. Melanie’s coverage has been cited in various lawmakers’ reports, letters and bills, and in the Labor Department’s fiduciary rule in 2024. In 2019, Melanie received an Honorable Mention, Range of Work by a Single Author award from @Folio. Melanie joined Investment Advisor magazine as New York bureau chief in 2000. She has been a columnist since 2002. She started her career in Washington in 1994, covering financial issues at American Banker. Since 1997, Melanie has been covering investment-related issues, holding senior editorial positions at American Banker publications in both Washington and New York. Briefly, she was content chief for Internet Capital Group’s EFinancialWorld in New York and wrote freelance articles for Institutional Investor. Melanie holds a bachelor’s degree in English from Towson University. She interned at The Baltimore Sun and its suburban edition.
