UnitedHealth Group Settles 401(k) Fund Complaint for $69 Million

After more than three years of litigation, UnitedHealth Group Inc. has agreed to a $69 million settlement in a class action lawsuit involving fund selection for its 401(k) Savings Plan, according to a court filing on Friday.

The proposed settlement, which awaits court approval, aims to resolve claims that the company mismanaged investments in the Wells Fargo Target Fund Suite, potentially affecting more than 300,000 current and former participants in the plan.

The lawsuit, filed under the Employee Retirement Income Security Act, alleged that UnitedHealth failed to act in the best interest of plan participants by offering target-date funds managed by Allspring Global Investments, formerly Wells Fargo Asset Management. The settlement covers individuals who invested in the Wells Fargo Target Fund Suite between April 23, 2015, and the date of judgment.

In an April 2021 filing in the U.S. District Court of Minnesota, lead plaintiff Kim Snyder alleged that UnitedHealth violated ERISA by failing to uphold its fiduciary duties and engaging in prohibited transactions. The lawsuit, Snyder v. UnitedHealth Group, claims the company mishandled its 401(k) plan by “imprudently and disloyally” managing the Wells Fargo Target Fund Suite, which remained on the plan’s investment menu despite poor performance.

Snyder asserted in a prior court filing that the majority of the funds in the Wells Fargo Target Fund Suite underperformed. The performance was framed in the complaint as being worse than between 70% and 97% of peers within the respective Morningstar categories over three-, five- and 10-year periods.

The plan had assets of $22.4 billion as of June 2024, according to a Form 5500 filing.

UnitedHealth Group had sought to have the charges dismissed before coming to the recent settlement. The company does so as it manages a national discussion of business practices after the December 4 assassination of its divisional CEO, Brian Thompson.

Protracted Legal Battle

The resolution follows a lengthy and complex legal process, including two motions for summary judgment, extensive fact and expert discovery, and mediation facilitated by an independent third party. Over the course of the litigation, the parties exchanged thousands of documents, conducted 20 depositions and reviewed reports from four expert witnesses.

Class counsel Sanford Heisler Sharp McKnight LLP stated that the settlement represents a fair and reasonable resolution, balancing the value of the claims against the risks of continued litigation.

“This is a tremendous and historic result for our Plaintiff and Plan participants,” Charles H. Field, Sanford Heisler Sharp McKnight’s managing partner, said in a statement.

In an opinion written in March by U.S. District Judge John R. Tunheim, he found the possibility that UnitedHealth prioritized its business relationship with Wells Fargo over its duty to act prudently and loyally. The ruling also highlighted questions about the reasonableness of Wells Fargo’s fees and whether UnitedHealth engaged in prohibited transactions.

“There was a large, two-way business relationship between United and Wells,” Tunheim wrote. “United generated between $50 and $60 million in revenue from 2014-2017 as Wells’s health insurance provider. On the other side of the ledger, Wells provided United with substantial banking services.”

Tunheim also noted that in the TDF industry, United was Wells Fargo’s largest client. The 401(k) plan made up about 45% of the business flowing from UnitedHealth to Wells.

Details of the Settlement

Under the proposed terms, UnitedHealth and its insurers will deposit $69 million into a settlement fund. After deducting attorneys’ fees, litigation expenses and a service award for the class representative, the remaining funds will be distributed pro rata among eligible participants.

The agreement also includes a request for court orders to notify class members, appoint a settlement administrator and schedule a final fairness hearing. At the hearing, the court will evaluate the fairness of the settlement and decide on the approval of attorneys’ fees and other awards.