A federal judge has given final approval to a historic $69 million settlement in a class action lawsuit over UnitedHealth Group's 401(k) plan. The plaintiffs alleged that UnitedHealth violated their fiduciary duties under the Employee Retirement Income Security Act (ERISA) by retaining the poorly performing Wells Fargo target date funds in the company's 401(k) plan.
Judge R. Tunheim of the U.S. District Court of Minnesota said that he would sign proposed orders without major changes in Snyder v. UnitedHealth Group, et al. The settlement allows the plaintiffs' lawyers to receive one-third of the settlement, or $23 million, plus over $735,000 in costs. The remaining funds will go to the 350,000 beneficiaries of the UnitedHealth Group 401(k) Savings Plan. Kim Snyder, class representative, also would receive a service award of $50,000, due to the more than 340 hours of personal time she spent on the case over the last four years.
In their suit, the plaintiffs claimed that not only did UnitedHealth Group violate fiduciary duties of prudence of loyalty under ERISA, but they did so to benefit the company, not the plan beneficiaries. According to the complaint, Wells Fargo was a major customer and financier for UnitedHealth Group. As a result, when the company considered dropping the lackluster Wells Fargo Target Fund Suite from its 401(k) plan's lineup of investments, executive leaders, including Chief Financial Officer (CFO) John Rex, allegedly intervened to retain the Wells Fargo fund.
During the litigation, a 2018 email from Rex details how he stepped in and overruled the recommendations of an internal investment committee to drop the Wells Fargo fund from the plan. Rex reasoned that the business relationship between UnitedHealth and Wells Fargo justified keeping the funds part of the 401(k) plan.
UnitedHealth maintains that its monitoring and selection process for funds included in its 401(k) investment options met all fiduciary duties under ERISA. However, UnitedHealth kept the Wells Fargo fund as an investment option for years, despite its abysmal performance. The Wells Fargo fund trailed behind 70–90% of similar funds over a decade, which, according to the complaint, cost plan beneficiaries hundreds of millions of dollars in lost gains.
Current plan participants will receive their portion of the settlement directly deposited into their 401(k) accounts. Former plan participants will receive payment by check, but they may also roll their settlement funds over into an eligible retirement account if desired.
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