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Wells Fargo (WFC) to Pay $32.5M to Settle Retirement Plan Case
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Wells Fargo & Company (WFC - Free Report) has agreed to pay $32.5 million to resolve allegations made in March 2020 of self-dealing with the company’s 401(k) plan. The settlement represents approximately 40% of the plan participants’ estimated damages.
According to papers filed in the Minnesota federal court, the bank breached its fiduciary duty by favoring its own funds in its retirement plan for employees above other similar investments that offered better results at lower fees.
Wells Fargo has target-date collective investment trusts in its 401(k) plan, which is a default option for participants who don’t select their own investments. The company inappropriately transferred about $5 billion worth of plan assets to these target-date trusts in 2016. These trusts, being newly formed, had no performance history to track their record and establish the fact that they were appropriate.
In 2017, Wells Fargo was dismissed in a case on prior target-date mutual fund series within its plan. However, in May 2021, when the company appealed to get the case dismissed, the court denied the same since WFC had violated the Employee Retirement Income Security Act (“ERISA”). The settlement is now expected to benefit more than 400,000 people who participated in the company’s $40-billion 401(k) plan.
Employees who participated in this plan from Mar 13, 2014 through the date when the court finalizes the settlement, are entitled to claim their damages. This, however, excludes any employee who was a member of the company’s benefits review committee.
Wells Fargo has been slapped with numerous penalties and sanctions since September 2016, including a cap on its asset position by the Federal Reserve. In February 2020, the bank had entered into a $3-billion settlement with the authorities investigating its Community Bank sales practices. Further, in September 2021, the bank was levied with restrictions on acquiring certain residential mortgage servicing and a $250-million penalty due to its inefficient home-lending loss mitigation program.
Wells Fargo still has a long list of pending legal cases and remains under close supervision of regulatory authorities. A number of recent ERISA lawsuits have targeted companies that put their own mutual funds in their employees' 401(k) plans. This has led to settlements of more than $470 million in recent years.
Shares of the company have jumped 19.6% over the past year against 3.8% decline recorded by the industry.
Several other banks continue to encounter legal hassles and are charged with huge sums of money for business malpractices.
A unit of The Bank of New York Mellon Corporation (BK - Free Report) has been charged with a record fine and a reprimand by the Central Bank of Ireland. Per a recent article by Bloomberg, the company broke the rules on outsourcing fund administration services and provided “inaccurate and incomplete information” to the regulators.
BNY Mellon Fund Services DAC admitted to the breaches, which took place between July 2013 and December 2019. It has been fined €10.78 million ($11.8 million) for 16 regulatory breaches. The penalty was reduced from €15.4 million as the company decided to settle.
The Central Bank of Ireland’s director of enforcement, Seana Cunningham, said that BNY Mellon “failed to act with expediency, transparency and openness even once it was aware that there were further issues with its outsourcing arrangements.”
Earlier in March, Deutsche Bank AG (DB - Free Report) agreed to prolongate the term of an existing independent compliance monitor until February 2023, after the U.S. Department of Justice (“DOJ”) prosecutors detected that the bank had breached the terms of a deferred prosecution agreement (“DPA”) by not timely revealing a misconduct complaint on environmental, social and governance-related information in its asset-management arm, DWS.
Per a Financial Times article, Deutsche Bank had signed a DPA with the DOJ in 2021. As part of the settlement related to the bank’s alleged manipulative commodities trading and bribery practices, DB had agreed to notify the DOJ about potential legal issues at its earliest knowledge of the same.
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Wells Fargo (WFC) to Pay $32.5M to Settle Retirement Plan Case
Wells Fargo & Company (WFC - Free Report) has agreed to pay $32.5 million to resolve allegations made in March 2020 of self-dealing with the company’s 401(k) plan. The settlement represents approximately 40% of the plan participants’ estimated damages.
According to papers filed in the Minnesota federal court, the bank breached its fiduciary duty by favoring its own funds in its retirement plan for employees above other similar investments that offered better results at lower fees.
Wells Fargo has target-date collective investment trusts in its 401(k) plan, which is a default option for participants who don’t select their own investments. The company inappropriately transferred about $5 billion worth of plan assets to these target-date trusts in 2016. These trusts, being newly formed, had no performance history to track their record and establish the fact that they were appropriate.
In 2017, Wells Fargo was dismissed in a case on prior target-date mutual fund series within its plan. However, in May 2021, when the company appealed to get the case dismissed, the court denied the same since WFC had violated the Employee Retirement Income Security Act (“ERISA”). The settlement is now expected to benefit more than 400,000 people who participated in the company’s $40-billion 401(k) plan.
Employees who participated in this plan from Mar 13, 2014 through the date when the court finalizes the settlement, are entitled to claim their damages. This, however, excludes any employee who was a member of the company’s benefits review committee.
Wells Fargo has been slapped with numerous penalties and sanctions since September 2016, including a cap on its asset position by the Federal Reserve. In February 2020, the bank had entered into a $3-billion settlement with the authorities investigating its Community Bank sales practices. Further, in September 2021, the bank was levied with restrictions on acquiring certain residential mortgage servicing and a $250-million penalty due to its inefficient home-lending loss mitigation program.
Wells Fargo still has a long list of pending legal cases and remains under close supervision of regulatory authorities. A number of recent ERISA lawsuits have targeted companies that put their own mutual funds in their employees' 401(k) plans. This has led to settlements of more than $470 million in recent years.
Shares of the company have jumped 19.6% over the past year against 3.8% decline recorded by the industry.
Image Source: Zacks Investment Research
Wells Fargo currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Malpractices by Other Firms
Several other banks continue to encounter legal hassles and are charged with huge sums of money for business malpractices.
A unit of The Bank of New York Mellon Corporation (BK - Free Report) has been charged with a record fine and a reprimand by the Central Bank of Ireland. Per a recent article by Bloomberg, the company broke the rules on outsourcing fund administration services and provided “inaccurate and incomplete information” to the regulators.
BNY Mellon Fund Services DAC admitted to the breaches, which took place between July 2013 and December 2019. It has been fined €10.78 million ($11.8 million) for 16 regulatory breaches. The penalty was reduced from €15.4 million as the company decided to settle.
The Central Bank of Ireland’s director of enforcement, Seana Cunningham, said that BNY Mellon “failed to act with expediency, transparency and openness even once it was aware that there were further issues with its outsourcing arrangements.”
Earlier in March, Deutsche Bank AG (DB - Free Report) agreed to prolongate the term of an existing independent compliance monitor until February 2023, after the U.S. Department of Justice (“DOJ”) prosecutors detected that the bank had breached the terms of a deferred prosecution agreement (“DPA”) by not timely revealing a misconduct complaint on environmental, social and governance-related information in its asset-management arm, DWS.
Per a Financial Times article, Deutsche Bank had signed a DPA with the DOJ in 2021. As part of the settlement related to the bank’s alleged manipulative commodities trading and bribery practices, DB had agreed to notify the DOJ about potential legal issues at its earliest knowledge of the same.