Wells Fargo Settles Multimillion Dollar 401(k) Suit with DOL

Wells Fargo has settled with the U.S. Department of Labor (DOL) after an investigation revealed that the fund overpaid for company stock purchased for the plan during specific years. The settlement requires Wells Fargo to pay almost $132 million to its 401(k) plan participants and a penalty of nearly $13.2 million. The lawsuit involves Wells Fargo and Company, Wells Fargo Bank, and GreatBanc Trust Company, a trustee of the 401(k) plan.

The Employee Retirement Security Income Act (ERISA) requires that retirement plans purchase employer stock at no more than fair market value. An investigation by DOL’s Employee Benefits Security Administration (EBSA) showed that from 2013 to 2018, Wells Fargo and GreatBanc purchased Wells Fargo preferred stock at between $1,033 and $1,090 per share. The stock was specifically designed for the plan and converted to $1,000 per share of common stock when allocated to participants. The plan borrowed money from Wells Fargo to purchase the preferred stock for more than it would be worth to the participants.

Wells Fargo also used the dividends paid on the preferred shares to repay the stock purchase loans. The entire transaction intended to cause the plan to pay more for each share of stock than plan participants could ever receive for those shares.

The settlement amount Wells Fargo pays into a trust will be allocated to plan participants affected by the transactions. Wells Fargo also will redeem any remaining preferred stock for common stock and cease using the dividends to repay the stock purchase loans. GreatBanc will not act as a fiduciary to a public company involving leveraged transactions in an employee stock ownership plan, except under specific circumstances.

HBL has experience in all areas of benefits and employment law, offering a comprehensive solution to all your business benefits and HR/employment needs. We help ensure you are in compliance with the complex requirements of ERISA and the IRS code, as well as those laws that impact you and your employees. Together, we reduce your exposure to potential legal or financial penalties. Learn more by calling 470-571-1007.

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Hall Benefits Law, LLC

HBL offers employers comprehensive legal guidance on benefits in mergers and acquisitions, Employee Stock Ownership Plans (ESOPs), executive compensation, health and welfare benefits, healthcare reform, and retirement plans. We counsel a wide spectrum of clients including small, mid-sized, and large companies, 401(k) investment advisors, health insurance brokers, accountants, attorneys, and HR consultants, just to name a few. HBL is passionate about advising clients, and we are dedicated to our mission: to provide comprehensive, personalized, and practical ERISA and benefits legal solutions that exceed client expectations.

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