A participant in the Wells Fargo 401(k) plan has sued the company and plan fiduciaries for allegedly placing company interests over employees’ benefits through its policy of managing forfeited plan assets.
The lawsuit, filed June 11, in San Francisco federal court, is the latest in a series of complaints that pits companies following IRS guidelines vs. what plaintiffs say is ERISA’s requirement that participants’ interests come first.
The disputes focus on what companies can do with corporate contributions designated for 401(k) plan participants who leave before they are fully vested.
The employees’ contributions aren’t affected; but the Internal Revenue Service says companies can use the forfeited funds to reduce their corporate contributions, reduce plan expenses or add money to participants’ accounts.
Many large companies with big retirement plans have been sued, including Intuit, Clorox, Honeywell International, HP and Mattel. Wells Fargo’s 401(k) plan is the largest in this group. It had $45.8 billion in assets as of Dec. 31, 2022, according to the latest Form 5500.
Among corporate defined contribution retirement plans tracked by Pensions & Investments, the Wells Fargo plan was the sixth largest overall as of Sept. 30, 2023.
“Defendants’ allocation of forfeited fund assets to reduce its own employer contributions benefitted defendants, but harmed the plan and participants in the plan,” said the complaint, filed as Thomas O. Matula Jr. vs. Wells Fargo & Co.
The retirement plan has a three-year vesting period for company contributions, the lawsuit said.
The case alleges damages caused by the defendants’ reducing plan assets, failing to put the forfeited amounts in participants’ accounts and causing participants to incur expenses “that could otherwise have been covered in whole or in part by forfeited funds,” said the lawsuit, which seeks class-action status.
The complaint conceded that plan executives have a choice in managing forfeited funds, citing the 2022 Form 5500 that listed three choices: reduce future employer contributions, pay plan expenses, “or make corrective adjustments to participants’ accounts.”
The plaintiff accused the defendants of failing to conduct “a reasoned and impartial decision-making process in deciding to use the forfeited funds in the plan to reduce the company’s own contribution expenses.”
A Wells Fargo spokeswoman declined to comment.
The first court ruling in this string of forfeiture lawsuits took place May 24 when a federal judge in San Diego rejected Qualcomm’s motion to dismiss a lawsuit by a 401(k) plan participant in Antonio Perez-Cruet vs. Qualcomm Inc. et al. The Qualcomm Inc. Employee Savings & Retirement Plan, San Diego, had $6.5 billion in assets as of Dec. 31, 2022, according to the latest Form 5500.
In another DC plan forfeiture case, Yagy vs. Tetra Tech Inc. et al., a federal judge in Los Angeles ruled May 17 that the dispute should be resolved by arbitration.
