UnitedHealth Kept Floundering Target Date Fund Suite to Curry Favor with Wells Fargo, Lawsuit Alleges [UPDATE]

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A proposed class action lawsuit claims UnitedHealth Group caused participants in its employee retirement plan to lose millions in savings by retaining a poorly performing Wells Fargo target fund suite as one of the plan’s investment options for over a decade.

The 90-page amended complaint, which adds to a lawsuit initially filed in April 2021, says that UnitedHealth and its board of directors, top executives and investment committee have breached their fiduciary duties by elevating the healthcare giant’s own business interests over those of retirement plan participants.

Although the Employee Retirement Income Security Act (ERISA) requires fiduciaries to closely monitor a retirement plan’s investments, remove imprudent investments and act at all times in the sole interest of participants, the defendants “did just the opposite,” the complaint alleges. Per the suit, UnitedHealth retained a suite of Wells Fargo target funds as the plan’s default investment option for more than 10 years, even though it was “one of the worst performing investment suites in the entire market” and produced such “abysmal” results that any prudent fiduciary would have quickly removed it from the plan’s investment menu.

The lawsuit claims that even though the UnitedHealth retirement plan, with billions of dollars in assets, had “tremendous leverage” to demand better target date products and services, the defendants instead used the plan’s assets to further UnitedHealth’s relationship with Wells Fargo, a “key business partner.”

The case relays that the defendants’ decision to add the Wells Fargo target fund suite, a group of 11 target retirement date funds, to the plan in 2010 was made during the same year that UnitedHealth was made the primary healthcare provider for the newly merged bank. Per the case, the Wells Fargo target fund suite was selected over superior target date funds solely to bolster UnitedHealth’s business interests.

Over the next five years, UnitedHealth failed to remove the Wells Fargo suite from its investment lineup even though it significantly underperformed official benchmark indices and comparable target date funds, the lawsuit alleges. Indeed, virtually all of the funds in the suite performed worse than 70 to 97 percent of their peer funds during the first decade of the suite’s existence, the suit says.

The lawsuit alleges that in 2016, even the company’s investment committee, after reviewing the results of a two-year evaluation by the plan’s independent investment consultant, concluded that the Wells Fargo target fund suite should be replaced and ranked it as the lowest option among all the alternatives. Nevertheless, UnitedHealth’s chief financial officer overruled the committee’s objections because Wells Fargo was a “so-called jumbo customer,” major lender and main underwriter for UnitedHealth’s business, the lawsuit states.

“UnitedHealth closely monitored its business relationship with Wells Fargo and saw the Plan’s assets as a bargaining chip in that relationship,” the complaint contends.

The suit says UnitedHealth’s CFO ultimately joined the investment committee, who, under his direction, abandoned its prudent selection criteria for investment options, ignored its previous findings about what would be best for plan participants, cut out the company’s independent investment consultant from the decision-making process, and “concocted a pretext” to justify retaining the Wells Fargo target fund suite in the plan.

Per the case, UnitedHealth’s decision to retain the Wells Fargo suite over the past decade was made in part “to curry favor with, and benefit,” its business partner and advance the company’s own interests at the expense of plan participants and their beneficiaries, who the lawsuit says have lost millions in retirement savings as a result.

The suit looks to represent all participants and beneficiaries of the UnitedHealth savings plan who invested in the Wells Fargo target fund suite from April 23, 2015 through the date of judgment.

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