In a settlement announced Sept. 12, Wells Fargo agreed to pay a $13.2 million penalty to DOL, as well as approximately $131.8 million to current and former 401(k) plan participants affected by these transactions. It also agreed to redeem certain preferred securities held by Wells Fargo’s 401(k) plan in exchange for shares of the company’s common stock.
The terms of the settlement also state that GreatBanc Trust Company, a plan trustee, “will not act as a fiduciary to a public company concerning any future leveraged transaction involving an employee stock ownership plan, unless the plan acquires only publicly traded stock and pays no more than the fair market value,” according to the DOL.
“The Employee Retirement Income Security Act requires, and participants’ retirement security demands, that when retirement plans purchase employer stock, they pay no more than fair market value,” said Ali Khawar, EBSA’s acting assistant secretary. “This settlement demonstrates that the Employee Benefits Security Administration will not allow participants to be harmed by ERISA plans that overpay for plan assets.”
According to the findings of an investigation conducted by the DOL’s Employee Benefits Security Administration, Wells Fargo and GreatBanc “caused the 401(k) plan to pay between $1,033 and $1,090 per share for Wells Fargo preferred stock. Specifically designed for the plan, the stock converted to a set value of $1,000 in Wells Fargo common stock when allocated to participants. In transactions between 2013 and 2018, the plan borrowed money from Wells Fargo to purchase the preferred stock,” the DOL stated.
The investigation further discovered, “Wells Fargo used the dividends paid on the preferred shares to defray its obligation to make contributions to the 401(k) plan by using the dividends to repay the stock purchase loans,” the DOL stated. “The investigation revealed the transaction was designed to cause the 401(k) plan to pay more for each share of stock than plan participants would ever receive.”
Wells Fargo and GreatBanc entered the settlement without admitting or denying the DOL’s allegations. In a statement, Wells Fargo disputed the allegations: “The company strongly disagrees with the DOL’s allegations and believes it followed applicable laws in conducting the transactions. Though the company disagrees with the DOL’s allegations and has not conducted these transactions since 2018, Wells Fargo believes resolving this legacy matter is in the best interest of the company.”
“All 401(k) plan participants received all matching and profit-sharing contributions due to them,” Wells Fargo added. “An independent third-party approved the transactions on behalf of the 401(k) plan and confirmed that the 401(k) plan did not pay more than fair market value for the company stock at issue.” 
Jaclyn Jaeger is a contributing editor at Compliance Chief 360° and a freelance business writer based in Manchester, New Hampshire.