One of the largest 401(k) plans in the country is under federal investigation. The Department of Labor and “other federal agencies” are looking into Wells Fargo’s 401(k) plan, according to a disclosure by the bank in a late Tuesday financial filing.
The disclosure, in its entirety, states:
“Federal government agencies, including the United States Department of Labor, are reviewing certain transactions associated with the Employee Stock Ownership Plan feature of the Company’s 401(k) plan, including the manner in which the 401(k) plan purchased certain securities used in connection with the Company’s contributions to the 401(k) plan.”
No other information about the review was included in the San Francisco-based bank’s 10-k regulatory filing Tuesday. Neither Wells Fargo nor the Department of Labor has provided additional comment about the investigation.
A portion of the Wells Fargo & Company 401(k) Plan, which according to its most recently available Form 5500 filing had $48.8 billion in assets at the end of 2020, is designed to meet the requirements to be considered an employee stock ownership plan (ESOP).
The Wells Fargo 401k is among the largest plans in the country. A recent EBSA analysis of 2019 Form 5500 data showed there were more than 600,000 401k plans in 2019, but only 147 of them had 50,000 or more participants. Wells Fargo’s plan had more than 340,000 participants at the end of 2019.
Per the company’s Summary Plan Description, Wells Fargo ESOP Fund Employer Matching Contributions allocated to a participant’s 401k Plan account “are initially invested in Wells Fargo common stock under the Wells Fargo ESOP Fund, which is an employee stock ownership plan (ESOP) within the 401k Plan. The Wells Fargo ESOP Fund seeks long-term capital growth through investment primarily in Wells Fargo & Company common stock.”
The Wells Fargo & Company common stock in the Wells Fargo ESOP Fund is held in a “unitized” fund, which means that the fund, in addition to the common stock, holds a small percentage of the assets in short-term cash equivalent investments to meet the daily liquidity needs of the Wells Fargo ESOP Fund for plan investment transfers and distributions, and the investors hold “units” of the Wells Fargo ESOP Fund instead of shares of Wells Fargo & Company common stock directly.
Wells Fargo’s 401k plan is also still in the midst of a class action lawsuit brought by a former employee in U.S. District Court for the District of Minnesota over the use of its own investment products in the plan. Last May, a federal judge denied a motion to dismiss the case, moving it one step closer to a trial.
The suit accuses Wells Fargo of violating ERISA by shortchanging its own 401k plan participants by steering their investments into the bank’s proprietary or affiliated investment vehicles, even though lower-cost, higher-performing options were available.
SEE ALSO:
• ESOP Advocate Touts Retirement Savings Advantages Revealed in New Study
Veteran financial services industry journalist Brian Anderson joined 401(k) Specialist as Managing Editor in January 2019. He has led editorial content for a variety of well-known properties including Insurance Forums, Life Insurance Selling, National Underwriter Life & Health, and Senior Market Advisor. He has always maintained a focus on providing readers with timely, useful information intended to help them build their business.
