An amended lawsuit alleges the chief monetary officer at UnitedHealth Group was motivated by his firm’s important enterprise relationships with Wells Fargo when he pushed to retain the financial institution’s low-performing funding funds within the worker 401(okay) plan.
First filed in April 2021, the category motion grievance was up to date this month to record UnitedHealth Group CFO John Rex as a defendant. It added allegations that the manager intervened and blocked a choice to take away the Wells Fargo funds regardless of issues from the retirement plan’s funding committee and an out of doors advisor.
About 200,000 workers, former workers and their beneficiaries put money into the UnitedHealth Group 401(okay) financial savings plan.
The lawsuit alleges that “poor efficiency” by the Wells Fargo funds between 2011 and 2015 value the plan and its contributors greater than $100 million in misplaced retirement financial savings. On the finish of 2020, the grasp belief at UnitedHealth Group invested greater than $8 billion, or practically half its belongings, within the Wells Fargo Goal Fund Suite, the grievance says.
“UnitedHealth didn’t use its leverage to determine and choose prudent goal date choices for plan contributors,” the lawsuit states. “As a substitute, UnitedHealth used plan belongings as leverage to bolster its enterprise relationships.”
UnitedHealth Group has defended the funding technique behind deciding on the funds from Wells Fargo, which declined to remark.
In a press release final week, UnitedHealth mentioned there was no foundation for including Rex as a person defendant. The corporate known as allegations towards the CFO “fully with out advantage” and mentioned on Friday: “It ought to shock no one that UnitedHealth Group has enterprise relationships with 1000’s of firms, together with many monetary establishments.”
UnitedHealth added the Wells Fargo Goal Fund Suite as an possibility within the worker retirement financial savings plan in 2010, in accordance with the lawsuit.
Known as goal date funds, they’re tailor-made for various teams of buyers based mostly on their retirement date. The funds are more and more standard with buyers and rebalance belongings over time so they’re much less centered on progress as buyers close to retirement age.
The Wells Fargo funds have been the default possibility when workers didn’t make funding elections. In addition they have been the one goal date choices inside the plan from 2010 to 2021, in accordance with the grievance.
By October 2014, the retirement plan’s unbiased funding advisor, Mercer, was expressing concern concerning the efficiency of the Wells Fargo funds and pushed for the analysis of alternate options, in accordance with the lawsuit. The corporate’s funding committee agreed by 2016, the grievance says, {that a} completely different goal date fund supplier ought to be chosen.
However Rex, the chief monetary officer, “knew that Wells Fargo was a key enterprise associate of UnitedHealth: a so-called jumbo buyer, a significant lender, and a primary underwriter for its enterprise,” the lawsuit says.
“At CFO Rex’s path, the funding committee excluded the plan’s funding advisor, Mercer, from key conferences that resulted within the determination to retain Wells Fargo, together with the ultimate interview with Wells Fargo and the opposite goal date suppliers,” the lawsuit says. “In the meantime, the funding committee abruptly stopped documenting its goal date choice course of and maintained no contemporaneous information for the important thing conferences that resulted within the determination to retain Wells Fargo.
“Behind closed doorways, the repair was in to retain Wells Fargo,” the lawsuit asserts.
The lawsuit says Rex had his workers develop a spreadsheet exhibiting charges that Minnetonka-based UnitedHealth was paying to, and receiving from, six completely different firms that would provide goal date funding funds.
“The information confirmed that Wells Fargo was a much more worthwhile buyer for UnitedHealth than the opposite goal date candidates,” says the grievance filed final week within the U.S. District Courtroom of Minnesota. “Quickly afterwards, inner correspondence warned that if Wells Fargo was not chosen, there would possible be an escalation to the chairman of the board of UnitedHealth, Stephen J. Hemsley, and UnitedHealth’s CEO David S. Wichmann.”
In June 2021, UnitedHealth Group filed a movement to dismiss the case. The corporate argued that whereas the retirement financial savings plan lets employees choose riskier choices, it made the goal funds the default selection as a result of they “exchanged among the potential for increased fairness beneficial properties for draw back safety in occasions of market bother.”
The plan adopted this conservative technique within the years after the 2008 monetary disaster, UnitedHealth Group mentioned, when many Individuals noticed massive declines in retirement financial savings.
“Enterprising legal professionals might select to pursue baseless claims, however nothing within the legislation helps utilizing hindsight and apples-to-oranges comparisons to query good religion funding selections made in the perfect pursuits of retirement plan contributors, which generated lots of of tens of millions of {dollars} in retirement revenue for our workers whereas moderately aiming to guard them from outsize losses in bear markets,” the corporate mentioned in a press release.
In December, U.S. District Courtroom Decide John Tunheim dominated the category motion case might go ahead, denying the corporate’s motions for each a dismissal and abstract judgment. A trial has been scheduled for February 2024.
The choose wrote that the grievance “demonstrated that there was long-term underperformance of the Wells Fargo [funds] compared to significant benchmarks, which plausibly raises an inference of imprudence and is ample to outlive a movement to dismiss.”
UnitedHealth Group has not but responded in court docket to allegations from final week’s submitting.
In final 12 months’s movement to dismiss, the corporate argued the Wells Fargo funds delivered “billions of {dollars} in constructive returns” based mostly on a method that factored the longer life expectancy and decrease financial savings price of plan contributors. Along with securing decrease charges, retirement plan managers labored with Wells Fargo to make modifications in 2017 that present they have been “not asleep on the wheel,” the corporate mentioned within the court docket submitting.
