Compliance December 13, 2024

UnitedHealth Group Settles 401(k) Fund Complaint for $69 Million

If the agreement is approved, participants will receive payments after UnitedHealth did not replace underperforming Wells Fargo funds.

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After more than three years of litigation, UnitedHealth Group Inc. has agreed to a $69 million settlement in a class action lawsuit involving fund selection for its 401(k) Savings Plan, according to a court filing on Friday.

The proposed settlement, which awaits court approval, aims to resolve claims that the company mismanaged investments in the Wells Fargo Target Fund Suite, potentially affecting more than 300,000 current and former participants in the plan.

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The lawsuit, filed under the Employee Retirement Income Security Act, alleged that UnitedHealth failed to act in the best interest of plan participants by offering target-date funds managed by Allspring Global Investments, formerly Wells Fargo Asset Management. The settlement covers individuals who invested in the Wells Fargo Target Fund Suite between April 23, 2015, and the date of judgment.

In an April 2021 filing in the U.S. District Court of Minnesota, lead plaintiff Kim Snyder alleged that UnitedHealth violated ERISA by failing to uphold its fiduciary duties and engaging in prohibited transactions. The lawsuit, Snyder v. UnitedHealth Group, claims the company mishandled its 401(k) plan by “imprudently and disloyally” managing the Wells Fargo Target Fund Suite, which remained on the plan’s investment menu despite poor performance.

Snyder asserted in a prior court filing that the majority of the funds in the Wells Fargo Target Fund Suite underperformed. The performance was framed in the complaint as being worse than between 70% and 97% of peers within the respective Morningstar categories over three-, five- and 10-year periods.

The plan had assets of $22.4 billion as of June 2024, according to a Form 5500 filing.

UnitedHealth Group had sought to have the charges dismissed before coming to the recent settlement. The company does so as it manages a national discussion of business practices after the December 4 assassination of its divisional CEO, Brian Thompson.

Protracted Legal Battle

The resolution follows a lengthy and complex legal process, including two motions for summary judgment, extensive fact and expert discovery, and mediation facilitated by an independent third party. Over the course of the litigation, the parties exchanged thousands of documents, conducted 20 depositions and reviewed reports from four expert witnesses.

Class counsel Sanford Heisler Sharp McKnight LLP stated that the settlement represents a fair and reasonable resolution, balancing the value of the claims against the risks of continued litigation.

“This is a tremendous and historic result for our Plaintiff and Plan participants,” Charles H. Field, Sanford Heisler Sharp McKnight’s managing partner, said in a statement.

In an opinion written in March by U.S. District Judge John R. Tunheim, he found the possibility that UnitedHealth prioritized its business relationship with Wells Fargo over its duty to act prudently and loyally. The ruling also highlighted questions about the reasonableness of Wells Fargo’s fees and whether UnitedHealth engaged in prohibited transactions.

“There was a large, two-way business relationship between United and Wells,” Tunheim wrote. “United generated between $50 and $60 million in revenue from 2014-2017 as Wells’s health insurance provider. On the other side of the ledger, Wells provided United with substantial banking services.”

Tunheim also noted that in the TDF industry, United was Wells Fargo’s largest client. The 401(k) plan made up about 45% of the business flowing from UnitedHealth to Wells.

Details of the Settlement

Under the proposed terms, UnitedHealth and its insurers will deposit $69 million into a settlement fund. After deducting attorneys’ fees, litigation expenses and a service award for the class representative, the remaining funds will be distributed pro rata among eligible participants.

The agreement also includes a request for court orders to notify class members, appoint a settlement administrator and schedule a final fairness hearing. At the hearing, the court will evaluate the fairness of the settlement and decide on the approval of attorneys’ fees and other awards.

Compliance December 13, 2024

ERISA Advisory Council Approves 3 New QDIA Recommendations

The council is seeking to provide more participant education on retirement income options and a safe harbor for IRA rollovers.

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An advisory body for the Department of Labor voted on Thursday to send three proposals to the DOL to increase participant awareness of and retirement income use of qualified default investment alternatives in defined contribution retirement plans.

The 2024 Advisory Council on Employee Welfare and Pension Benefit Plans, commonly known as the ERISA Advisory Council, met on Thursday and Friday to discuss proposals its members had offered in prior meetings, ultimately voting to send several proposals to the DOL.

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The meeting was led by Chair Jack Towarnicky, counsel at Koehler Fitzgerald LLC, and Vice Chair Bill Ryan, a partner in and defined contribution team leader at NEPC. The discussion focused on QDIAs’ roles in both the accumulation and decumulation phases of retirement saving.

On Friday, the DOL’s assistant secretary for employee benefits security, Lisa Gomez, and Office of Regulations and Interpretations acting director Jeff Turner, attended the meeting and heard the council’s recommendations.

Unanimous ‘Yes’ Votes

The council first discussed the three proposals and then held a vote, with all in attendance voting “Yes.” The proposals sent to the DOL are as follows:

  1. The DOL would issue guidance in the form of a comprehensive “Tips” document or another form to serve as a road map for plan fiduciaries when selecting and monitoring both nonguaranteed and guaranteed retirement income options, inside or outside of a QDIA. For instance, the DOL would provide guidance on how to choose an appropriate target-date fund with an embedded annuity option;
  2. The DOL would provide and update guidance to plan fiduciaries on giving participants education and notices regarding their QDIA investments in all phases of plan participation (accumulation, transition and decumulation). The council stated it believes participants need more education on how their default investments are being managed; and
  3. The DOL would amend the safe harbor for automatic, involuntary rollovers into individual retirement accounts to allow the use of the same QDIAs available to employer-sponsored plans, rather than the current capital preservation default.

The DOL’s reaction at Friday’s meeting was that the first recommendation sounds “overwhelming,” Turner said.

“[It’s] a challenging task, because if we provide tips on drawdown, the insurance industry will object,” Turner said. “If we provide tips only on [selecting] insurance products, then the non-insurance portion of the industry will explode. So the only solution would be to provide tips that cover the entire waterfront, and that can be challenging.”

Gomez also noted that educating participants on retirement income options is challenging because people learn things in different ways—whether that be through a calculator tool, a publication or a video. She asked the council if it had received any testimony from plan sponsors about effective educational tools.

Holly Verdeyen, a member of the council and a partner in and U.S. defined contribution leader at Mercer, said many retirement income solutions include customized participant education support and that as more plan sponsors adopt these solutions, these educational tools will likely be used more.

Revisiting QDIAs in Light of SECURE Reforms

The council had set out this year to consider several areas for deeper analysis that led to the recommendations passed Thursday:

  • QDIA selection and usage: understanding how plan sponsors choose and implement these investments;
  • Decumulation strategies: evaluating the integration of lifetime income components, such as insured or pooled products, and their impact on participant behavior;
  • Performance metrics and transparency: defining benchmarks for success and assessing transparency in investment options like target-date funds and collective investment trusts, including their exposure to private equity, annuities and associated fees; and
  • Participant disclosures: examining disparities in disclosure requirements for mutual funds versus collective investment trusts.
Correction: Corrects the name and quote attribution for one of the attendees.

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