UnitedHealth Group agrees to $69 million settlement over low-performing retirement plan options

UnitedHealth Group agreed to pay $69 million to settle a class action lawsuit from an employee who alleged the health care giant offered its employees lower-performing 401(k) options than it could have, costing workers hundreds of millions in lost investment profits.

The litigation alleged interference by the company’s CFO to retain certain Wells Fargo funds within the 401(k) plan because the bank was a large customer for UnitedHealth Group, including for coverage sold by its large UnitedHealthcare health insurance business.

News of the settlement between UnitedHealth and the plaintiffs came after a judge in Minneapolis ruled earlier this year that a jury could conclude, based on evidence discovered during the case, that the company had been caught with its “hand in the cookie jar.”

Lead plaintiff Kim Snyder filed the case more than three and a half years from ago. Class certification was granted by the judge, and Snyder’s attorneys say the class could include more than 300,000 people.

“Over the course of three and a half years of litigation, plaintiff Kim Snyder ... bore the particular burden of being the only class representative in the action,” Charles Field, an attorney with Sanford Heisler Sharp McKnight, said in a statement to the Minnesota Star Tribune. “Ms. Snyder’s commitment to this case was the means of obtaining an outstanding outcome for the plan and the class.”

Snyder was not available for comment.

UnitedHealth Group said in a statement that the company’s 401(k) plan fiduciaries have always acted in the best interest of those using the plan to save for retirement.

“We strongly deny any allegations to the contrary,” UnitedHealth Group said. “If approved by the court, this settlement will enable all parties to put this matter behind them and move forward.”

In March, Judge John Tunheim of the U.S. District Court of Minnesota denied most of UnitedHealth Group’s motion for summary judgment in the case, which named the company, chief financial officer John Rex and former CEO David Wichmann as defendants.

“Because a reasonable trier of fact could easily find that plaintiff Kim Snyder caught defendant UnitedHealth Group, Inc., with its hand in the cookie jar, the court will substantially deny United’s motion for summary judgment,” Tunheim wrote in his decision, which set the stage for a court trial.

Wells Fargo did not immediately respond to a request for comment. The bank in 2021 sold its asset management business, which ran the retirement funds at issue in the case.

The settlement remains subject to review and approval by Tunheim. A hearing date for court approval has not yet been set.

“Plaintiff seeks preliminary approval of a proposed settlement that provides substantial relief to a class of over 300,000 current and former participants in the UnitedHealth Group 401(k) Savings Plan,” attorneys for Snyder wrote in a memo filed with the court Friday.

UnitedHealth Group’s 401(k) included more than 200,000 current and former employees, according to court documents, with about $15 billion under management.

In 2010, the company added the Wells Fargo target fund suite as an option in the employee retirement savings plan. These funds, which are popular with investors, are tailored for different groups based on retirement date; they rebalance assets over time to focus less on growth as investors near retirement age.

Snyder sued in 2021. Her complaint alleged the Wells Fargo funds were retained as the default option for investors, despite their poor performance, in part because UnitedHealth wanted to protect its business relationship with the big bank.

In his March ruling, Tunheim highlighted evidence showing Chief Financial Officer John Rex requested the production of “balance of trade” ledgers to show UnitedHealth Group’s business with Wells Fargo versus alternate investment firms that could be selected.

On one side of the ledger, the judge wrote, UnitedHealth generated between $50 million and $60 million in revenue over four years as health insurance provider for Wells Fargo. On the other side, Wells provided substantial banking services to UnitedHealth, which was the bank’s “largest client and lifeline” in the market for target-date funds, the judge wrote.

Among other things, these comparisons showed that UnitedHealth’s most profitable relationship was with Wells Fargo.

The judge also cited a January 2018 email from a Wells Fargo employee stating Rex complained about UnitedHealth losing its bid to keep a health insurance contract with the bank. According to this email, Rex told the bank employee that he had “stepped in front of a freight train” the previous summer to preserve the investment business for Wells Fargo.

“Rex’s request for balance of trade ledgers and his statement to Wells Fargo about jumping in front of a freight train, to name two instances, show the injection of business interests into the plan selection process,” Tunheim wrote. The judge noted a debate between the parties about whether the email statement was hearsay, and therefore not admissible, but wrote: “The loyalty issue is not a particularly close call, and the court would deny summary judgment even absent the email.”

UnitedHealth Group argued the Wells Fargo funds outperformed peers when accounting for an investment approach that traded lower risks for lower rewards. Plaintiffs countered other funds would have generated hundreds of millions of dollars in additional investment profits — and that UnitedHealth short-circuited an internal effort to change vendors.

In October 2014, an outside consultant recommended UnitedHealth evaluate other options and an internal investment committee two years later considered proposals from six candidates and ranked Wells Fargo at the bottom. Yet UnitedHealth ultimately decided in June 2017 to retain the Wells Fargo funds.

The company defended the decision by noting a leadership change in the bank’s asset management business plus its strong position for negotiating a lower price from Wells Fargo. Plaintiffs said a prudent fiduciary would have moved much faster to make a change; they also highlighted how Rex was appointed to the investment committee evaluating options.

“Consideration of United’s relationship with Wells did not end with Rex,” Tunheim wrote in March. “Rather, the committee received word that United executives, including its president David Wichmann, needed to be preemptively informed which companies would be selected as finalists. A committee member later warned of escalation to executives, including Wichmann, if Wells was not selected.”

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