UnitedHealth retirement lawsuit set to go to trial Class action suit alleging UnitedHealth caught with 'hand in the cookie jar' to go to trial

MINNEAPOLIS - A class action lawsuit alleging UnitedHealth Group retained Wells Fargo investment funds as a key option in its employee retirement plan despite poor performance is headed to trial.

UnitedHealth, the plaintiffs claim, did this in part to protect its "balance of trade" with the big bank.

Judge John Tunheim of the U.S. District Court of Minnesota on Tuesday denied key parts of UnitedHealth Group's motion for summary judgment in the case, which names the company and former chief executive officer David Wichmann as defendants.

The lawsuit was amended in August 2022 to add as a defendant chief financial officer John Rex, who plaintiffs allege was motivated by his company's significant business relationship with Wells Fargo when he pushed to retain the bank's low-performing investment funds in the employee 401(k) plan.

In his ruling, Tunheim said the case would be scheduled for court at the next available trial date.

"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," the judge wrote.

"There are genuine disputes of material fact as to whether United breached its duties of prudence and loyalty under the Employee Retirement Income Securities Act by investing its employees' 401(k) savings in underperforming Wells Fargo funds for more than a decade and allowing United's business relationship with Wells to influence that allegedly imprudent retention," Tunheim ruled. "There is also a genuine dispute as to whether Wells's fees were reasonable, and thus whether United engaged in a prohibited transaction."

In a Wednesday statement to the Star Tribune, UnitedHealth group said: "These claims are without merit. We look forward to presenting our case at trial."

Wells Fargo did not immediately comment.

Tunheim noted how evidence shows Rex requested "balance of trade" ledgers be produced, to show how much business UnitedHealth Group conducted with various investment firms that could be selected as retirement fund options.

On one side of the ledger, United generated between $50 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 United, the judge wrote, was the bank's "largest client and lifeline" in the industry segment for a popular investment option called target-date funds.

These comparisons, Tunheim wrote, showed that United's most profitable relationship was with Wells.

The judge also cited an email from a Wells employee that documented how in January 2018 Rex complained UnitedHealth was losing its bid to keep a health insurance contract with the bank. 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 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, while noting that the parties debate whether the statement recorded in the email is hearsay, and therefore not admissible. "The loyalty issue is not a particularly close call, and the court would deny summary judgment even absent the email."

UnitedHealth added the Wells Fargo Target Fund Suite as an option in the employee retirement savings plan in 2010. These so-called target date funds are tailored for different groups of investors based on their retirement date. Assets are rebalanced over time to focus less on growth as investors near retirement age.

The Wells Fargo funds were the default option when employees did not make investment elections, the lawsuit says, and the only target date funds available within the plan from 2010 to 2021.

UnitedHealth Group is Minnesota's largest company by revenue. It operates UnitedHealthcare, which is one of the nation's largest health insurers, as well as a fast-growing health services business called Optum.

UnitedHealth Group's 401(k) includes more than 200,000 current and former employees with around $15 billion under management.

The company argues the Wells Fargo funds outperformed peers when accounting for their lower-risk, lower-reward investment approach. Plaintiffs counter other funds would have generated hundreds of millions of dollars in additional investment profits, making the funds from Wells inferior.

In October 2014, an outside consultant recommended that United evaluate other options. From February through June 2016, an internal investment committee heard and considered proposals from six candidates, Tunheim wrote, and ranked Wells at the bottom "by a significant margin."

As a non-finalist, Wells was "ostensibly out of the running," according to the ruling. Yet the bank ultimately decided in June 2017 to retain the funds from Wells Fargo.

United says Wells Fargo changed leadership in its asset management business in late 2016, so the bank was given the chance to try again as a professional courtesy. The company, in turn, says it was impressed by the new personnel, believed it had a strong negotiating position for a lower price from Wells and found problems with bids from other investment firms.

Plaintiffs say a prudent fiduciary would have moved much faster to change providers, rather than embark on a nearly three-year process. Plus, they argue United brought its business ties with Wells Fargo to the fore, Tunheim wrote, noting how Rex was appointed to the investment committee evaluating options and later named the "executive sponsor" of United's relationship with the bank.

"Consideration of United's relationship with Wells did not end with Rex," the judge wrote. "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."

Tunheim noted how Rex instructed the company's consultant be out of the room for committee discussions for more than two months leading up to the decision. UnitedHealth did not keep contemporaneous minutes of certain selection meetings, Tunheim wrote, and abandoned scorecards that reflected poorly on Wells Fargo earlier in the process.

In March 2017, one month before the committee held finalist presentations, Rex learned United would have to bid to retain health insurance business from Wells Fargo. United finalized its decision to retain retirement funds from Wells in June 2017, three days before the bank opened bidding for the insurance contract.

United argued that the fact it was not ultimately awarded the health insurance contract the following winter "shows there was no quid pro quo," Tunheim wrote. But this does not resolve the company's pre-bidding motivation, the judge ruled, since Wells decided on the health insurance contract later.

"Rex may have still been motivated by the potential contract and simply miscalculated," Tunheim wrote. "The law often punishes attempted misfeasance the same as completed misfeasance. A failed bid to use the plan as a bargaining chip would still violate the duty of loyalty."

Tunheim found United's board of directors should not be a defendant in the case. The judge also ruled that the company did not breach any enforceable provision of its investment policy statement.