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Wells Fargo 401(k) Lawsuit- Here’s What You Should Know

Imagine you begin investing in your employer offered 401(k) retirement plan, only to find out those managing said funds may not be working in your best interest.

For employees at Wells Fargo, this is a sad reality many have faced. The company has agreed to pay $32.5 million after settling a two-year-long class action lawsuit brought upon by a former Wells Fargo employee after the company was found to be purchasing proprietary funds that were more expensive and lower-performing compared to other options on the market.

What Happened?

News of the incident came to light after a former employee accused the company of violating ERISA (and breached their fiduciary duty). The employer was accused of investing in funds that are affiliated with the company to maximize profits even though better performing (lower cost) were available. ERISA is defined by the U.S. Department of labor as:

The Employee Retirement Income Security Act of 1974 (ERISA) is a federal law that sets minimum standards for most voluntarily established retirement and health plans in private industry to provide protection for individuals in these plans.

ERISA requires plans to provide participants with plan information including important information about plan features and funding; sets minimum standards for participation, vesting, benefit accrual and funding; provides fiduciary responsibilities for those who manage and control plan assets; requires plans to establish a grievance and appeals process for participants to get benefits from their plans; gives participants the right to sue for benefits and breaches of fiduciary duty; and, if a defined benefit plan is terminated, guarantees payment of certain benefits through a federally chartered corporation, known as the Pension Benefit Guaranty Corporation (PBGC).

By choosing to invest in products that directly benefited the company while simultaneously over-charging and underperforming for their clients, Wells Fargo breached the fiduciary duty to those who were owed a high level of care. The lasting impacts of this decision go deeper than monetary punishment, the reputation of the company has also taken a hit and employee trust was damaged.

The firm had over 340k employees enrolled in the employer-sponsored 401(k) retirement plan who were not allowed to personally choose which funds to invest in. This resulted in a level of trust between the employees and those financial professionals in charge of making election decisions. By violating that trust, not only did they violate ERISA but violated fiduciary duty care.


You can speculate what led to the decisions that were made by the company, but it boils down to potential greed and oversight. There was an obvious conflict of interest as the company had high-level Wells Fargo executives choosing the funds in the retirement accounts, their job (and salaries) depend on the company maximizing profits. In a fiduciary relationship, the client should never be put second to company profits and this was an example of not working in their best interest by choosing funds that are more costly with lower returns for the client.


U.S. District Judge Donovan Frank denied the company’s motion to dismiss the complaint. Two years after the complaint was first brought on, the company chose to settle the class action suit for $32.5m to be distributed among plan owners from March 13, 2014 to the settlement finalization date. Of course, that is before all administrative and attorney fees have been deducted from the lump sum. According to plaintiff Yvonne Becker:

“[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.”

The company made no comment on the matter.

What We Learned

This case serves as a prime example to clients that you can never be too careful when choosing a financial professional to manage your retirement plan. Remember to ask questions, and perform at minimum annual check-ups on your investments in your retirement plan. Learn more about the investment products you have available on your retirement plan and how/why they were chosen.

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