Wells Fargo has reached an $84 million settlement in a proposed class action lawsuit accusing the bank of shortchanging retirement savers by using ESOP dividend income to fund its own 401(k) match in violation of ERISA rules.
Under ERISA, dividends paid on company stock held in an ESOP must primarily benefit plan participants. These dividends can be distributed directly to participants’ accounts or, if allowed by the plan, used to repay plan loans for stock purchases. Fiduciaries are required to act solely in the interest of employees, ensuring that dividends are not diverted for the employer’s gain or misused in a way that disadvantages participants.
The deal, filed this week in Minnesota federal court, resolves the lawsuit brought in September 2022 by former Wells Fargo employees. In addition to the ERISA claim, plaintiffs alleged that the ESOP overpaid for preferred stock and that GreatBanc Trust Co., the plan’s fiduciary, knowingly overvalued the stock so that excess dividends would benefit Wells Fargo, breaching its fiduciary duty to participants.
The resolution follows U.S. District Judge Laura M. Provinzino’s January decision to certify a class of former Wells Fargo employees who had participated in the bank’s 401(k) plan and enrolled their accounts in the ESOP. A settlement was first reported in August, and the court allowed additional time for class counsel to finalize the preliminary approval motion.
Plaintiffs called the settlement an “excellent result.” The $84 million fund will be distributed on a pro rata basis to roughly 425,000 class members, based on each participant’s total number of vested shares. The agreement also absolves GreatBanc Trust and former Wells Fargo CEO Timothy Sloan, who was named in the lawsuit, of any responsibility for funding the settlement.
The lawsuit comes on the heels of a $145 million settlement Wells Fargo reached in 2022 after the Department of Labor investigated whether the company’s 401(k) plan overpaid for Wells Fargo preferred stock between 2013 and 2018.
The case reflects a broader trend of increased ERISA and ESOP litigation nationwide. Experts note that lawsuits targeting how companies value ESOP stock and manage dividend income have accelerated in recent years, with fiduciary oversight and governance practices under heightened examination.
The settlement also comes amid increasing legislative and regulatory attention to ESOPs and ERISA fiduciary duties. Lawmakers and the Department of Labor have been pushing rules and bills to clarify how ESOP stock should be valued, strengthen fiduciary oversight, and elevate employee ownership in policymaking.
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