Just as Wells Fargo & Co. escaped from the jaws of one 401(k) lawsuit over in-house funds, it's now ensnared in another.
In a rare move, a federal judge dismissed a lawsuit against the company in May alleging breach of fiduciary duty for self-dealing, whereby it profited from proprietary target-date funds at the expense of employees.
Now, another participant, on behalf of a class of similarly situated individuals, has filed suit, similarly alleging that use of high-cost, underperforming proprietary investment funds enriched Wells Fargo but cost participants millions of dollars in retirement savings.
"Not only did the defendants include these investments out of self-interest, they failed to disclose the conflict of interest to plaintiff and members of the class," said the lawsuit, Wayman vs. Wells Fargo & Co. et al.
Wells Fargo spokesman Michael McCoy declined to comment on the litigation.
The pace of 401(k) litigation alleging excessive plan fees spiked last year, and the pace has continued in 2017. Several suits have been filed against asset managers, particularly those focused on active fund management, for self-dealing, including American Century Investments, MFS Investment Management, Franklin Templeton Investments, and Capital Group Cos., sponsor of the American FunTempleton Investments, and Capital Group Cos., sponsor of the American Funds brand.
The initial self-dealing suit against Wells Fargo, Meiners vs. Wells Fargo & Co. et al., was filed in November 2016. Observers called its ultimate dismissal an atypical outcome for financial services companies, since many other judges have allowed cases to proceed.
According to the most recent suit, the Wells 401(k) plan — one of the largest in the country, with about $40 billion in assets and more than 350,000 participants — included a proprietary target-date fund suite, and proprietary small-cap, large-cap growth, international equity and money market funds. It also alleges certain non-proprietary funds were high-cost and underperforming.
The 401(k) plan's fiduciaries breached their duties of loyalty and prudence by failing to "establish and use a systematic and unbiased review process to evaluate the performance and cost" of investment options, according to the suit, filed Nov. 17 in U.S. District Court in Minnesota.