In a dramatic close to a long-running employee benefits dispute, Wells Fargo & Co. has agreed to pay $84 million to settle a proposed class action lawsuit accusing the banking giant of misusing dividends from its employee stock ownership plan (ESOP) to meet its 401(k) matching contributions. The proposed settlement, filed Wednesday in Minnesota federal court, marks a major resolution in a case that has shadowed the bank since 2022.
The class of current and former Wells Fargo 401(k) participants filed a motion seeking preliminary approval of the deal in the Employee Retirement Income Security Act (ERISA) suit. If approved, the settlement will be distributed among more than 425,000 eligible participants on a pro rata basis — a result the plaintiffs hailed as “an excellent outcome for the class.”
Former Employees Claimed Misuse of Dividend Income
The controversy traces back to a September 2022 lawsuit brought by former Wells Fargo workers who alleged that the bank diverted ESOP dividend income — funds meant to benefit employee shareholders — to cover its own 401(k) matching obligations.
The plaintiffs contended this maneuver cheated plan participants out of millions in benefits, violating the fiduciary duty Wells Fargo owed under federal law. They also accused GreatBanc Trust Co., the ESOP’s fiduciary, of intentionally overvaluing preferred stock purchased for the fund, ensuring inflated dividends that allegedly funneled excess income back to the bank.
Adding to the mix, former Wells Fargo CEO Timothy Sloan was named as a defendant, accused of allowing or endorsing the scheme in breach of ERISA’s fiduciary standards.
