Retired Wells Fargo adviser: Firm violated fiduciary duty with 401(k) plan
A recently retired Wells Fargo adviser is seeking class action status for a lawsuit accusing the bank of improperly funneling billions of dollars in its employee 401(k) plan into the bank's proprietary funds.
The plaintiff, John Meiners of St. Louis, is suing Wells and the fiduciaries for the defined-contribution retirement plan, including the bank’s Employee Benefit Review Committee and its members and the human resources committee of the board of directors, in the U.S. District Court for the District of Minnesota.
Meiners worked for Wells since 1984, most recently as a senior vice president, says Greg Gutzler, one of his attorneys in the case. The Wells Fargo retirement plan has 350,000 participants and $35 billion in assets, making it one of the largest retirement plans in the country, according to the lawsuit.
According to the lawsuit, since 2010 the retirement plan funneled investments into Wells Fargo Dow Jones Target Date Funds, even though the funds were “substantially more expensive and worse performing than comparable funds” and effectively double-charged investors — once for the target date funds and once for the underlying Wells Fargo index funds.
Comparable target-date funds from Vanguard Group and Fidelity Investments did not double-charge, so the net expense ratios of the Wells Fargo funds were at least 2.5 times more than those funds, the lawsuit states.
The Wells Fargo target-date funds also performed worse than comparable funds — 5.44% per year for the five years ended June 30, compared to 7.02% for Vanguard, for example, and the Wells Fargo funds were lower rated by Morningstar and Lipper, according to the lawsuit.
The legal case claims that not only did the bank’s benefit committee fail to identify conflicts of interest and pull investments from Wells Fargo's target date funds during its quarterly reviews of the 401(k) plan, but the committee also designated the bank’s target-date funds as the default investment choice for plan participants who didn’t select an investment option.
That included funds rolled over from other retirement accounts and repayments of loans taken against an account, and for investors who checked the box for "easy enroll" and "quick enroll" features that automatically committed 6% to 12% of their pre-tax salary to the 401(k), the lawsuit states.
More than $3 billion of 401(k) fund assets were invested in the Wells Fargo target date funds, or 28% of the total in the target date funds, according to the lawsuit.
The compensation loss is the biggest for a major U.S. bank chief since the 2008 financial crisis.September 28
The penalty is the largest ever imposed by the Consumer Financial Protection Bureau.September 8
The lawsuit seeks to be certified as a class action case, and for the bank and the other defendants to restore all losses suffered by the plaintiffs and to pay back all revenues, including fees received by Wells Fargo funds from the retirement plan. The total, in the hundreds of millions of dollars, would be paid back into the 401(k) plan, says Gutzler, the plaintiff attorney.
Wells Fargo did not immediately return calls seeking comment.