As Wells Fargo tries to save its reputation after a whistleblower disclosed the bank’s practice of opening fake accounts in customers’ names, it now faces a suit from its own employees that alleges it funneled their retirement savings into underperforming funds that generated profit for Wells Fargo.
The class action lawsuit was filed in November in federal court in Minnesota and alleges “breach of fiduciary duties to all 401(k) participants over the last six years.” The employees are hoping to recover excess fees and unrealized profits. Wells Fargo invested over $3 billion of employee retirement savings into Wells Fargo Target Date Funds. Target date or “lifecycle” funds are a mix of stocks, bonds, and cash that change the distribution of the investment depending on the investor’s retirement date. Had the funds in question been invested into similar types of target date funds, but with different managers like Vanguard, many claim the employees could have earned returns of $323 million more over five years.
The suit also alleges that the Wells Fargo fund is 2.5 times more expensive than similar funds run by Vanguard and Fidelity Investments due to the system of fees imposed by the bank. Wells Fargo charges fees to run the target date fund as well as to manage the indexed funds. They also make the funds a default option for investment for their employees which generated substantial income for the bank. The complaint says that in all, 350,000 employees use the Wells Fargo 401(k) plan which has about $35 billion in assets.
Mismanagement is not Uncommon in Corporate America
Wells Fargo is not the only employer under fire for mismanagement of retirement funds. These kinds of lawsuits are becoming more common as evidenced by a suit that Boeing Co settled for $57 million, and recent lawsuits against several U.S. universities.
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