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UnitedHealth Group will pay $69 million to settle a class action alleging it kept underperforming Wells Fargo funds in its 401(k) plan to maintain a business relationship with the bank. The settlement, filed Friday in Minnesota federal court, is believed to be the largest ever in an Employee Retirement Income Security Act (ERISA) case focused on investment performance.

Historic Outcome in ERISA Litigation

Sanford Heisler Sharp McKnight LLP, representing the class alongside Halunen Law, praised the settlement as a monumental victory for retirement plan participants. "This is a tremendous and historic result," said Charles H. Field, chair of Sanford Heisler’s ERISA litigation practice. Lead plaintiff Kim Snyder was also commended for her pivotal role in the litigation.

The court filing seeks preliminary approval of the settlement, which would end nearly four years of litigation. If approved, the agreement would resolve allegations that UnitedHealth breached fiduciary duties under ERISA.

Allegations of Mishandling 401(k) Investments

The lawsuit, filed in April 2021, alleged UnitedHealth prioritized its business ties with Wells Fargo over the financial well-being of its employees. The Wells Fargo funds, according to the complaint, underperformed relative to 70% to 90% of comparable funds over a decade.

Plaintiff Kim Snyder claimed the company's failure to remove these investments from its 401(k) plan caused employees to miss out on hundreds of millions of dollars in potential retirement savings. Snyder argued that UnitedHealth breached its fiduciary duties under ERISA to act loyally and prudently on behalf of plan participants.

Court Rulings and Settlement Discussions

In 2022, U.S. District Judge John R. Tunheim granted class certification, allowing Snyder to represent thousands of UnitedHealth employees who invested in the plan since April 2015. Earlier this year, UnitedHealth failed to secure a dismissal, with Judge Tunheim stating that the evidence suggested UnitedHealth knew the Wells Fargo funds were underperforming but kept them for dubious reasons.

"There was a large, two-way business relationship between United and Wells," the judge noted. Wells Fargo provided banking services and was UnitedHealth's largest client in the target date fund industry, while UnitedHealth generated significant revenue as Wells Fargo's health insurer.

Settlement discussions began in 2022, and in September of this year, the parties announced they had reached an agreement, though the financial terms were undisclosed until now.

UnitedHealth Denies Wrongdoing

Despite agreeing to the settlement, UnitedHealth continues to deny any misconduct. A company spokesperson emphasized that the 401(k) plan fiduciaries "have always acted in the best interests of plan participants." The settlement, they said, will allow all parties to move forward.

Legal Representation and Next Steps

The class is represented by attorneys from Sanford Heisler Sharp McKnight LLP and Halunen Law, while UnitedHealth is represented by lawyers from Faegre Drinker Biddle & Reath LLP and Kirkland & Ellis LLP. Wells Fargo, which was not a defendant in the case, declined to comment.

Pending court approval, the settlement could set a precedent for ERISA litigation involving investment performance, underscoring the importance of fiduciary duties in managing employee retirement plans.