UnitedHealth Group (UHG) has agreed to a $69 million settlement to end the case of Snyder v. UnitedHealth Group. The settlement must be approved by the court but it is likely the largest ERISA settlement related to allegations regarding poor investment performance. The underperformance is critical to proving damages, but the case is really about the flawed decision-making process the UHG’s investment committee followed in retaining the underperforming investments.
UHG offered the Wells Fargo Target Date suite of funds in its 401(k) plan. The plaintiffs allege that the funds performed worse than 70%—97% of peer funds in their category over three, five, and ten-year time periods. They further alleged that UHG used factors other than the best interest of participants in its decision to retain the funds.
The case was moving toward trial after a judge denied UHG’s motion for summary judgment, noting that the plaintiff presented sufficient evidence that UHG had ‘its hand in the cookie jar.’ Facing a costly trial that they were unlikely to win, UHG chose to settle. Based on the alleged actions of UHG and their committee, this announcement of one of the highest ERISA litigation settlements is no surprise.
In this case, UHGs decision to retain the Wells Fargo funds had all the trappings of a conflict of interest and breach of fiduciary duty. UHG and Wells Fargo had a substantive two-way business relationship that likely impacted the decision to retain the Wells Fargo Funds. UHG’s 401(k) plan was the largest investor in the Wells Fargo funds, and Wells Fargo also provided UHG with a variety of additional banking services. On the other side, UHG was the insurance provider for Wells Fargo employees. These facts alone don’t constitute a breach of fiduciary duty, but certainly raise concerns about conflict of interest.
The plaintiffs claimed that UHG’s third-party consultant presented several recommendations to replace the Wells Fargo funds. The Wells Fargo Funds were included in the analysis but ranked at the bottom of the list. At that point, it is alleged that a UHG executive intervened in the process and inserted himself on the committee. The committee reviewed the options again, apparently excluding the investment consultant from the discussions, and elected to retain the Wells Fargo Funds.
Retaining an investment based on the business ties between two companies rather than the best interest of participants is a breach of fiduciary duty. While these were allegations that would have needed to be proven in court, it was enough for UHG to recognize the need to settle, even if it would be the largest settlement of its kind.
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