DOL Recovers Millions for Wells Fargo Plan Participants

A settlement has been reached after an Employee Benefits Security Administration investigation.

The Department of Labor has reclaimed $131.8 million for Wells Fargo 401(k) plan participants after an investigation uncovered that a plan trustee overpaid for company stock purchased for the plan from 2013 through 2018.

The DOL reached the settlement with Wells Fargo and Company, Wells Fargo Bank and GreatBanc Trust Company, a trustee to the plan, according to a statement.  

“Our investigation found those responsible for Wells Fargo’s 401(k) plan paid more than fair market value for employer stock and, by doing so, betrayed the trust of the plan’s current and future retirees,” Secretary of Labor Marty Walsh said in a statement. “Today’s settlement shows the Department of Labor will act when we find retirement assets are misused and benefit plans suffer.”

In addition to the recovered funds, Wells Fargo will pay a penalty of nearly $13.2 million as part of the settlement, according to the DOL. Wells Fargo and GreatBanc Trust Company entered the settlement without admitting or denying the allegations against them, a DOL press release says. 

The settlement comes after an investigation by the department’s Employee Benefits Security Administration found that Wells Fargo and GreatBanc Trust Company caused the 401(k) plan to pay between $1,033 and $1,090 per share for Wells Fargo preferred stock, according to department officials. The press release says that between 2013 and 2018, the plan borrowed money from Wells Fargo to purchase the preferred stock.

The stock, specifically designed for the plan, was converted to a set value of $1,000 in Wells Fargo common stock when allocated to participants. In other words, Wells Fargo and GreatBanc caused the plan to pay more for stock than it was worth when deposited into participants’ accounts.

Investigators at EBSA also found that Wells Fargo used the dividends paid on the preferred shares to defray its obligations to make deferrals to the 401(k) plan, by using the dividends to repay the stock purchase loans. According to the investigators, the transaction was designed to drive the 401(k) plan to pay more for each share of stock than plan participants would ever receive.  

“The Employee Retirement Income Security Act requires, and participants’ retirement security demands, that when retirement plans purchase employer stock, they pay no more than fair market value,” said Acting Assistant Secretary for Employee Benefits Security Ali Khawar. “This settlement demonstrates that the Employee Benefits Security Administration will not allow participants to be harmed by ERISA plans that overpay for plan assets.”

After Wells Fargo pays the settlement amount to the trust, the funds will be diverted to current and former participants affected by the transactions. Wells Fargo will redeem the remaining convertible preferred stock for common stock and will stop using dividends from the convertible preferred shares to repay the stock purchase loans, according to the DOL.

Per the settlement, GreatBanc is barred from serving as a fiduciary to a public company in connection with any future leveraged transaction involving an employee stock ownership plan, unless the plan acquires only publicly traded stock and pays no more than the fair market value.