401(k) Forfeiture Complaint Against Wells Fargo Dismissed

A federal judge in Minnesota dismissed a June 2024 complaint against Wells Fargo alleging the company and its plan fiduciaries violated the Employee Retirement Income Security Act by improperly using forfeited funds in its 401(k) plan.

U.S. District Judge John Tunheim, presiding in U. S. District Court for the District of Minnesota, ruled that the plaintiff, Thomas Matula Jr., failed to state a valid claim under ERISA, since Wells Fargo’s 401(k) plan “does not authorize Wells Fargo to use forfeited funds to pay optional services and operating expenses of the Plan or to make arbitrary payments to participants’ individual accounts when there is no error to correct.”

The ruling, released June 18, closely resembled the dismissal of an ERISA complaint against J.P. Morgan on June 13 in Los Angeles.

In the Wells Fargo complaint, former employee and plan participant Matula alleged Wells Fargo violated ERISA by misusing forfeited funds in its 401(k) plan to benefit the company, rather than its participants. The complaint alleged Wells Fargo used the forfeited funds to reduce further employer contributions, rather than allocating forfeited funds to participants’ accounts.

However, the IRS has consistently taken the position that forfeitures can be used for any of three purposes: to pay plan expenses, to reduce employer contributions or to make an additional allocation to participants.

According to the Wells Fargo & Co. 401(k) Plan’s latest Form 5500, forfeitures used to offset employer contributions were approximately $6.34 million for the year that ended on December 31, 2023.

“Despite Matula’s well-taken claim that Wells Fargo could have used forfeited funds to pay for optional services and operating expenses, as well as necessary administrative expenses, the plan’s terms do not provide such an authorization,” Tunheim stated in his ruling.

Since the plaintiff failed to state an appropriate financial injury, according to the ruling, Tunheim found that there was no standing to sue. Tunheim dismissed the lawsuit with prejudice, so the complaint cannot be refiled in his court.

The Wells Fargo & Co. 401(k) Plan had $51.8 billion in assets with 304,980 participants, as of December 31, 2023, according to its latest Form 5500.