The UnitedHealth Group of Minnesota has come to an agreement for the benefit of a settlement amount of $69 million to resolve a class action lawsuit regarding the mismanagement of the 401(k) retirement plan. The lawsuit was filed by the lead plaintiff, Kim Snyder, about three years ago and alleged that the company had a business relationship above the interests of its employees, which resulted in its plan participants losing a lot of finances.
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Snyder claimed that UnitedHealth kept Wells Fargo underperforming target-date funds in the 401(k) plan in order to protect their larger business with the bank. Evidence showed that these default investments had terrible returns, costing employees hundreds of millions in lost investment profits.
The United Health Group can be found much earlier this year when Judge John Tunheim of the U.S. District Court of Minnesota said that a jury has all the reason to determine if UnitedHealth has caught itself with its “hand in the cookie jar.” Evidence apparently showed that executives of the company, including Chief Financial Officer John Rex and former CEO David Wichmann, may have weighed heavily on investment decisions, benefiting Wells Fargo, a major client of UnitedHealth’s health insurance services.
Banking in Wells Fargo used to maintain entries on accounts of UnitedHealth’s revenues, generally between $50 million and $60 million over four years, as court documents disclosed. UnitedHealth, in what appeared to be a corporate favor, retained Wells Fargo’s retirement funds, despite internal recommendations that the company look at alternative options.
UnitedHealth denied the allegations, stating its 401(k) fiduciaries acted in employees’ best interests. However, the company agreed to settle the case to avoid prolonged litigation. The settlement, which includes relief for over 300,000 current and former employees, is still subject to court approval.
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Details of mismanagement and the path to settlement
Essentially, high leaders, as alleged, would have injected business interests into the investment process for the retirement plan. According to the filings, Rex has ‘balance of trade’ reports on UnitedHealth’s business dealings with Wells Fargo compared to other potential investment firms. Another email from a Wells Fargo employee stated that Rex had actually “stepped in front of a freight train” to save the bank’s investment arm by using personal intervention with Rex to remain the business link. Evidence also shows that by October 2014, an external consultant had an advisory recommendation to UnitedHealth to consider diversifying its sources of investments.
Internal investment committee reports then started ranking Wells Fargo funds bottom in the group of six candidates by the end of the second year after 2014. However, UnitedHealth still continued to keep these funds in 2017, citing leadership changes at Wells Fargo and the possibility of negotiating lower management fees. Critics complained that a prudent fiduciary would probably have done better in speedy change, triggering as much as hundreds of millions of dollars in profits for plan participants over time. The lawsuit further claims that there were conflicts of interest created by Rex’s position on the investment committee under directions from senior executives, including Wichmann.
Judge Tunheim denied summary judgment to UnitedHealth based on strong evidence of loyalty breaches. While it contended that the conservative bending of the Wells Fargo funds at risk resulted in the performance observed, the plaintiffs retorted that the use of other vehicles would be more profitable while facing similar risks.
In his ruling, Tunheim stated, “The loyalty issue is not a particularly close call.” He noted that even without key email evidence, the case demonstrated significant conflicts of interest in the selection process for 401(k) investment options.
Looking ahead
Expected to provide immense relief to the affected employees, the settlement of $69 million is only awaiting a nod from the court. As per the lawyers fighting for the plaintiffs, the outcome is nothing but another vital victory for over 300,000 participants in UnitedHealth’s retirement plan.
UnitedHealth asserted that settling the case would not mean admitting the wrongdoing and will enable all of the parties to “move forward.” Wells Fargo, which sold its asset management division late in 2021, did not comment yet on the settlement.
The case highlights the need for employees to always be on the lookout for what their employer’s sponsored plans offer. The accusation here against UnitedHealth includes a potential breach of fiduciary duty; fiduciaries are under a legal obligation to prioritize the financial welfare of plan participants over the problematic interests of the corporation.
