DOL Orders Wells Fargo to Pay $132M Settlement to 401(k) Participants

Wells Fargo last week agreed to a settlement with the U.S. Department of Labor (DOL) in which it will return more than $131.8 million to its retirement plan participants and pay a penalty of nearly $13.2 million.

“Our investigation found those responsible for Wells Fargo’s 401(k) plan paid more than fair market value for employer stock and, by doing so, betrayed the trust of the plan’s current and future retirees,” Labor Secretary Marty Walsh said in a press release. “Today’s settlement shows the Department of Labor will act when we find retirement assets are misused and benefit plans suffer.”

As part of the settlement, GreatBanc Trust Co. no longer will act as a fiduciary to a public company in connection with any future transaction involving an employee stock-ownership plan “unless the plan acquires only publicly traded stock and pays no more than the fair market value,” according to the DOL.

The action follows an investigation by the agency’s Employee Benefits Security Administration that determined Wells Fargo and GreatBanc caused the 401(k) plan to pay between $1,033 and $1,090 per share for Wells Fargo preferred stock. Specifically designed for the plan, the stock converted to a set value of $1,000 in Wells Fargo common stock when allocated to participants. In transactions between 2013 and 2018, the plan borrowed money from Wells Fargo to purchase the preferred stock.

Investigators also found that Wells Fargo used dividends paid on the preferred shares to defray its obligation to make contributions to the 401(k) plan. The investigation revealed that the transaction was designed to cause the 401(k) plan to pay more for each share of stock than plan participants would ever receive.

The company entered into the settlement without admitting guilt. Wells Fargo “strongly disagrees with the DOL’s allegations and believes it followed applicable laws in conducting the transactions,” it said in a statement. “All 401(k) plan participants received all matching and profit-sharing contributions due to them. An independent third party approved the transactions on behalf of the 401(k) plan and confirmed that the 401(k) plan did not pay more than fair market value for the company stock at issue.”

After Wells Fargo pays the settlement amount to a trust, the funds will be allocated to current and former participants affected by these transactions. Wells Fargo will redeem the remaining convertible preferred stock for common stock and stop using dividends from the convertible preferred shares to repay the stock purchase loans.

From: BenefitsPRO