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Wells Fargo Must Defend Affiliated Funds in $40 Billion 401(k)

Bloomberg Law

May 12, 2021

  • Bank defeated similar suit in Eighth Circuit in 2018.
  • But this lawsuit has more details, benchmarks, judge says.

Wells Fargo & Co. must face a proposed class action challenging the affiliated funds in its $40 billion 401(k) plan after a Minnesota federal judge on Wednesday ruled that plan participants provided meaningful benchmarks showing how the banking giant favored its own funds over cheaper and better-performing alternatives.

Yvonne Becker’s complaint relies on the same benchmarks set by Wells Fargo to argue that the bank kept its own funds in the 401(k) plan despite multi-year periods of underperformance, Judge Donovan W. Frank of the U.S. District Court for the District of Minnesota held. Becker’s “numerous and specific allegations” support her claim that Wells Fargo’s plan management was imprudent and disloyal under the Employee Retirement Income Security Act, he said.

. . .

Frank’s decision comes three years after Wells Fargo defeated similar allegations in the U.S. Court of Appeals for the Eighth Circuit. But unlike the allegations rejected by the Eighth Circuit, Becker’s complaint provides meaningful benchmarks by which to assess the Wells Fargo funds, because it relies on “the very benchmarks that Defendants themselves selected for comparison,” Frank said.

He also allowed Becker to move forward with claims under ERISA’s prohibited transaction rules based on the plan’s alleged purchase of affiliated funds from Wells Fargo.

Becker’s lawsuit challenges the Wells Fargo target-date collective investment trusts in the company’s 401(k) plan, which are the default options for participants who don’t select their own investments. Wells Fargo transferred about $5 billion worth of plan assets to these target-date trusts in 2016, even though the trusts were newly established and had “no prior performance history or track record which could demonstrate that they were appropriate,” Becker claims.

Becker is represented by Cohen Milstein Sellers & Toll PLLC and Zimmerman Reed LLP.

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