(Photographer: Tiffany Hagler-Geard/Bloomberg)
On Friday, a federal judge in Minneapolis granted final approval of a record-setting $69 million settlement in a class action lawsuit alleging UnitedHealth Group depleted the retirement savings of workers for years by selecting “poorly performing” Wells Fargo target date funds in the company 401(k) plan.
On Thursday, Judge John R. Tunheim of the U.S. District Court of Minnesota said the case, Snyder v. UnitedHealth Group, et al., could move forward after determining “a reasonable trier of fact could easily find” that Kim Snyder, the lead plaintiff in the case, caught the Eden Prairie, Minnesota-based health care company “with its hand in the cookie jar.”
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Judge Tunheim said he would sign proposed orders drafted by attorneys without major changes, allowing lawyers to receive one-third of the settlement fund, or $23 million, plus reimbursement of $735,162 in costs. The rest will be distributed among 350,000 beneficiaries of the UnitedHealth Group 401(k) Savings Plan.
Snyder, as the sole class representative, would also receive a service award of $50,000. The service award, the lawyers had argued, is justified by Snyder’s 340 hours of personal time invested over four years.
The case, which spanned nearly four years, stemmed from allegations that UnitedHealth violated its fiduciary duties, under the federal Employee Retirement Income Security Act of 1974 (ERISA), by “imprudently and disloyally selecting, retaining, and monitoring a suite of poorly performing target date funds—the Wells Fargo Target Fund Suite—for the Plan’s investment menu,” according to the suit.
As alleged in the complaint, Wells Fargo was a critical customer and financier for UnitedHealth and UnitedHealth’s executive leadership personally intervened to keep the poorly performing Wells Fargo Target Fund Suite on UnitedHealth’s 401(k) Plan to garner favor with, and benefit, Wells Fargo. UnitedHealth denied these allegations and contended that their monitoring and selection processes complied with the fiduciary standards under ERISA.
Snyder, who worked for UnitedHealth as a nurse, filed the lawsuit, alleging that CFO John Rex gave preferential priority to UnitedHealth's relationship with Wells Fargo, which managed the funds; and kept those interests even when they underperformed.
The claim said that "United had breached its duty of loyalty and prudence in retaining the Wells Fargo Target Date Suite, one of the worst-performing target date options in the entire market," according to a statement from attorneys Sanford Heisler Sharp. The funds trailed behind 70–90% of peer funds over a decade, costing employees hundreds of millions in lost gains, according to the complaint.
After the lawsuit was originally filed, litigation unearthed a 2018 email in which Chief Financial Officer John Rex complained Wells Fargo was shifting its insurance business away from UnitedHealthcare, even though Rex had “stepped in front of a freight train” to maintain Wells Fargo as the default retirement investment fund despite recommendations from an internal committee.
The email said Rex overruled a decision to remove the Wells Fargo funds and told the investment committee that due to the business relationship with Wells Fargo he felt it was important to keep them on as part of the company's retirement fund.
Now, participants still active in the 401(k) account will see their award deposited directly into their retirement accounts, while former participants will receive direct payments by check, the motion notes, but were given the option to have their distributions rolled over into an eligible retirement account.
Related: UnitedHealth agrees to $69M settlement in lawsuit over ‘low-performing’ 401(k) funds
UnitedHealth Group issued a statement Thursday that while it denied any allegation that the company failed to act in the best interest of plan participants, “this settlement allows all parties to put this matter behind them and move on.”
“The firm is honored to have worked for the benefit of the Class for more than four years and to have recovered this settlement for Plan participants,” said David Sanford, chairman of Sanford Heisler Sharp McKnight and counsel for Plaintiff and the Class. “We will continue to bring cases like this on behalf of individuals planning for retirement.”
“ERISA’s fiduciary standards are strict and exacting,” added Charles Field, a partner and Co-Chair of Sanford Heisler Sharp McKnight’s Financial Mismanagement and ERISA Litigation Practice Group and counsel for Plaintiff and the Class. “Today’s decision underscores the fact that fiduciaries should be held to the highest standards in managing Plan participants’ assets.
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Lynn Cavanaugh
Lynn Varacalli Cavanaugh is Senior Editor, Retirement at BenefitsPRO. Prior, she was editor-in-chief of the What's New in Benefits & Compensation newsletter. She has worked for major firms in the employee benefits space, Vanguard and Willis Towers Watson, as well as top media companies, including Condé Nast and American Media.
