Client Service September 30, 2022

Congressman Jim Himes Addresses Investment Adviser Association Forum

Congressman discusses pending retirement legislation, political polarization, sanctions policy.

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Congressman Jim Himes, D-Connecticut, expressed confidence that SECURE 2.0 “will happen in this Congress” during his remarks Wednesday at the Investment Adviser Association’s 2022 Policy and Leadership Forum in Washington, D.C.

Himes noted the importance of this legislation, and said that many Americans are having difficulties “saving for retirement,” or even “saving for anything.”

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SECURE 2.0 refers to two Senate bills, the Enhancing American Retirement Now Act and the Retirement Improvement and Savings Enhancement to Supplement Healthy Investments for the Nest Egg Act—aka the EARN Act and the RISE & SHINE Act—as well as one House bill, the Securing a Strong Retirement Act. The three bills aim to increase Americans’ access to retirement accounts.

Passing SECURE 2.0 in this Congress would require the three bills to be consolidated into one and passed in both chambers before being sent to the president. Langston Emerson, a partner at public policy firm Mindset, said later in the forum that this is likely to happen during the lame-duck session after this November’s midterm elections.

Himes also addressed some of the investment risks associated with American national security policy and economic sanctions. He emphasized that the U.S. would not compromise regarding Russia’s invasion of Ukraine and that “we will continue to sanction Russia.” He also cautioned the audience of the possible risks of investing in certain sectors of Russian markets because of the perception of being complicit in what he called the “genocidal” war that Russia started against Ukraine.

These sanctions include blocking many Russian elites and institutions from the U.S. financial system, including the Russian Central Bank and an embargo on various Russian imports, including oil, gas, coal and other commodities.

He also explained that despite Chinese human rights violations against the Uyghur population of northwest China, sanctions against China are more costly and complicated due to the size of its economy, and that therefore the U.S. is more reluctant to sanction the country in the manner they have sanctioned Russia.

Himes noted that members of Congress are aware that the more the U.S. weaponizes the size of its financial system, the less effective that tool becomes, as more countries seek alternatives to it.

For example, when Russia was cut off from the Society for Worldwide Interbank Financial Telecommunications, better known as SWIFT, and the U.S. financial system, the country demanded that its oil and gas customers open ruble-denominated accounts instead of dollar-denominated accounts to pay, and most customers complied.

Himes acknowledged that the federal government’s broad sanction authority is something that investors must account for, but added policymakers on the hill are not “stupid,” meaning that Congress is aware that sanctions impose a burden and risk on business, and that they account for that when making and considering sanctions policy.

Compliance September 29, 2022

Wells Fargo Is Targeted in ERISA Lawsuit Alleging Self-Dealing

The Wells Fargo retirement plan fiduciaries are accused of engaging in prohibited transactions and breaching their fiduciary duty to participants.

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Plaintiffs have brought an Employee Retirement Income Security Act lawsuit seeking class certification against Wells Fargo, former CEO Tim Sloan, GreatBanc Trust Company and the employee benefit review committee and its members for alleged breaches of fiduciary duty to participants saving for retirement in the Wells Fargo 401(k) and employee stock ownership plans.

The lawsuit, filed in the U.S. District Court for the District of Minnesota, alleges that Wells Fargo 401(k) plan fiduciaries engaged in “corporate self-dealing at the expense of the retirement savings of company employees.” 

“In short, the excess dividend income was used for the benefit of Wells Fargo, not for the benefit of the plan and its participants and beneficiaries,” the complaint states.  

Plaintiffs claim that during the class period—from September 27, 2016, to “the date of judgment”—the defendants breached their fiduciary duties to participants and engaged in prohibited transactions under ERISA that caused harm to plan participants by overpaying for stock in the employee stock ownership plan, the complaint states.

“Over the course of many years, defendants caused the plan to pay more than fair market value when acquiring Wells Fargo preferred stock for the ESOP portion of the plan,” the complaint states. “Each year, going back to at least 2007, up to and including 2018, the plan acquired preferred stock financed by a loan from Wells Fargo.”

Under the terms of the loan with which the stock was purchased, the plan was required to use preferred stock dividends to pay the principal and interest on the loan, the complaint says.

“But the dividend income from preferred stock owned by the plan vastly exceeded the amounts paid on the loans by tens of millions, sometimes hundreds of millions, a year,” the complaint states. “Wells Fargo took the excess dividend income and used it to meet its employer matching contribution obligations, which contributions were a contractual and ERISA liability of Wells Fargo.”

Retirement plan fiduciaries are bound by the twin principles of duty and loyalty to plan participants under ERISA.

“ERISA fiduciaries are bound to act with an ‘eye single’ to the interest of the plan participants and beneficiaries to whom they owe a duty,” the complaint states. “Defendants in this case violated that bedrock principle by favoring the economic interest of Wells Fargo over those of the plan and its participants, to whom they owe the highest duties known to the law.”

Plaintiffs have brought seven separate counts against the defendants for engaging in prohibited transactions and breach of fiduciary duty—naming Wells Fargo, GreatBanc Trust and Sloan.

“Sloan used his discretionary authority to take plan assets, reclassified dividends, for the use of Wells Fargo,” the complaint states. “Such decisions helped the profitability of the company by hundreds of millions annually, which in turn benefited Sloan through various forms of compensation.”

The complaint adds that as the firm’s CEO, “Sloan knew or should have known the plan paid more than fair market value for preferred stock because he knew dividends exceeding minimum loan payments would be used to defray Wells Fargo’s employer matching liabilities instead of inuring to the benefit of the plan, even though such dividends were impounded into the fair market value conclusion made by GreatBanc.”

According to the complaint, Wells Fargo’s 401(k) plan had approximately $40.8 billion in assets and 324,314 participants with account balances as of year-end 2018, and each year employees contribute more than $1.5 billion of income to the plan.

The lawsuit follows an investigation by the Department of Labor’s Employee Benefits Security Administration that uncovered that plan trustee GreatBanc Trust Company overpaid for the company stock purchased for the plan from 2013 through 2018.

After the investigation, the DOL reached a settlement agreement earlier this month with Wells Fargo and Company, Wells Fargo Bank and GreatBanc Trust Company.   

A Wells Fargo spokesperson says that the firm would not comment on the class action fining at this time.

Requests for comment to GreatBanc Trust were not returned.

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