Judge concludes lower returns in target-date series didn't constitute breach of duty
A U.S. District Court judge in Minneapolis dismissed a lawsuit by a participant in a Wells Fargo 401(k) plan, saying the plaintiff failed to demonstrate that plan executives breached their fiduciary duties under the Employee Retirement Income Security Act.
The participant, John Meiners, argued that Wells Fargo’s plan should have offered cheaper investment options than those provided by the parent company, including a target-date series that serves as a qualified default investment alternative.
Mr. Meiners, who sought class-action status, said the Wells Fargo plan violated ERISA because the target-date series performed worse than one offered by Vanguard Group. He said the Wells Fargo target-date funds charged higher fees than ones offered by Vanguard or Fidelity Investments.
“Taken as a whole, these allegations do not give rise to an inference of a breach of fiduciary duty,” wrote U.S. District Judge David S. Doty in a May 25 opinion in the case of Meiners vs. Wells Fargo & Company et al. Mr. Meiners sued in November 2016.
Mr. Doty criticized the plaintiff’s attempt to prove an ERISA violation because a Vanguard target-date series had better returns than the Wells Fargo Dow Jones Target Date series. “A comparison of the returns of two different funds is insufficient” to demonstrate a fiduciary duty breach, he wrote.
The two target-date portfolios “perform differently because the Wells Fargo funds have a different investment strategy,” wrote Mr. Doty. The Wells Fargo funds have a higher allocation to bonds than the Vanguard funds, he wrote.
Mr. Doty rejected the argument about higher fees because the plaintiff “fails to provide a meaningful benchmark” against which the Wells Fargo funds’ fees could be measured. Mr. Doty noted that the plaintiff never argued that the Wells Fargo fees were excessive or unreasonable — just higher than fees charged by Vanguard or Fidelity.
“Fees, like performance, cannot be analyzed in a vacuum,” the judge wrote. “Failure to invest in the cheapest fund available does not necessarily suggest a breach of fiduciary duty.”
The Wells Fargo & Company 401(k) Plan had $35.8 billion in assets as of Dec. 31, 2015, according to its latest Form 5500.