Fiduciary Breach in the use of Proprietary Funds…
Since the Board of Governor’s of the federal Reserve System has been investigating, and uncovering, gross mis-deeds by Wells Fargo executives and the Board of Directors, perhaps they should also investigate the way they have been treating their employees 401(k) retirement savings plan as well….
The 401(k) industry took a major hit from a district court judge a last year when Minnesota district court judge David S. Doty granted Wells Fargo’s motion to dismiss in a Fiduciary Breach case alleging the firm breached its fiduciary duty to the company 401(k) plan by offering proprietary target-date funds, and charging excessive fees. There is no acceptable benchmark to determine suitability of these funds nor whether the fees are excessive, but historically, under the Investment Advisers Act of 1940 and ERISA regulations, the trading practice of providing conflicted advice was grounds for litigation, yet this judge went so far as to even disallow an amended compliant.
If district court judges continue to follow Doty’s methodology to not consider the rights of investors in their decision-making, our retirement system is certainly doomed for extinction. If he had simply reviewed Section 206 of the Advisers Act, he would have had to acknowledge not only the possibility, but also the likelihood, that the fees were excessive and that the proprietary funds offered by Wells Fargo were conflicted investments. Without allowing the case to move forward leaves his decision more than suspect.
The reality is that, as the complaint states,
“…… since at least 2010, Defendants have engaged in a practice of self-dealing and imprudent investing of Plan assets by funneling billions of dollars of those assets into Wells Fargo’s own proprietary funds. Specifically, the Benefit Committee, with the knowledge and participation of Wells Fargo, the HR Committee, and the other fiduciary Defendants, selected as investments a class of mutual funds—known as target date funds—and designed and maintained a system to maximize the amount of Plan assets invested into those funds.”
“For the entire class period described herein, the Wells Fargo target date funds cost on average over 2.5 times more than comparable target date funds while, at the same time, substantially and consistently under-performing those comparable funds. The substantial cost inflation was due, in part, to the fact that, unlike the comparable funds, Wells Fargo double charged for its target date funds—charging fees for both (1) managing the target date funds themselves, and (2) managing the index funds underlying the target date funds.”
Summary Plan Description/Prospectus…