WASHINGTON – The U.S. Department of Labor today announced a settlement with Wells Fargo and Company and Wells Fargo Bank and GreatBanc Trust Company – a plan trustee – that recovers more than $131.8 million for the retirement plan’s participants after a department investigation found that, from 2013 through 2018, the fund overpaid for company stock purchased for the plan.
Wells Fargo also agreed to pay a penalty of nearly $13.2 million as part of the settlement. Wells Fargo and GreatBanc entered into the settlement without admitting or denying the allegations made by the department.
The action follows an investigation by the department’s Employee Benefits Security Administration that determined Wells Fargo and GreatBanc Trust Company caused the 401(k) plan to pay between $1,033 and $1,090 per share for Wells Fargo preferred stock. Specifically designed for the plan, the stock converted to a set value of $1,000 in Wells Fargo common stock when allocated to participants. In transactions between 2013 and 2018, the plan borrowed money from Wells Fargo to purchase the preferred stock.
In addition to its discovery that Wells Fargo and GreatBanc caused the plan to pay more for stock than it would be worth when deposited in participants’ accounts, EBSA investigators learned Wells Fargo used the dividends paid on the preferred shares to defray its obligation to make contributions to the 401(k) plan, by using the dividends to repay the stock purchase loans. The investigation revealed the transaction was designed to cause the 401(k) plan to pay more for each share of stock than plan participants would ever receive.
“Our investigation found those responsible for Wells Fargo’s 401(k) plan paid more than fair market value for employer stock and, by doing so, betrayed the trust of the plan’s current and future retirees,” said Secretary of Labor Marty Walsh. “Today’s settlement shows the Department of Labor will act when we find retirement assets are misused and benefit plans suffer.”
Once Wells Fargo pays the settlement amount to the trust, the funds will be allocated to current and former participants affected by these transactions. Wells Fargo will redeem the remaining convertible preferred stock for common stock and will stop using dividends from the convertible preferred shares to repay the stock purchase loans.
In addition, GreatBanc will not act as a fiduciary to a public company in connection with any future leveraged transaction involving an employee stock ownership plan, unless the plan acquires only publicly traded stock and pays no more than the fair market value.
“When plan fiduciaries’ actions violate participants and beneficiaries’ trust, the Office of the Solicitor will take appropriate action,” said Solicitor of Labor Seema Nanda. “This settlement reflects the Department of Labor’s resolve to protect America’s workers’ hard-earned retirement savings and to ensure that plan fiduciaries comply with their legal requirements.”
“The Employee Retirement Income Security Act requires, and participants’ retirement security demands, that when retirement plans purchase employer stock, they pay no more than fair market value,” said Acting Assistant Secretary for Employee Benefits Security Ali Khawar. “This settlement demonstrates that the Employee Benefits Security Administration will not allow participants to be harmed by ERISA plans that overpay for plan assets.”
Employers and workers can reach EBSA toll-free at 866-444-3272 for help with problems related to private sector retirement and health plans. Learn more about EBSA.