Wells Fargo’s 401(k) Rollover Practices Under Investigation

Employers share a fiduciary responsibility regarding rollover advice

Stephen Miller, CEBS By Stephen Miller, CEBS April 27, 2018

The U.S. Department of Labor (DOL) is examining if Wells Fargo & Co. has been pushing participants in low-cost employer 401(k) plans to roll their holdings into more expensive individual retirement accounts (IRAs) at the bank. As the Wall Street Journal reported (behind the paper's subscriber firewall), other banks also have programs aimed at rolling over existing 401(k) plans into IRAs using proprietary products or third-party offerings that have revenue-sharing agreements that generate fees to the firm. But Wells Fargo remains under a cloud regarding misleading sales practices aimed at retail banking customers, for which it recently paid $1 billion to settle with federal regulators.

Below is a roundup of media coverage from SHRM Online and other sources about the Wells Fargo investigation and the fiduciary responsibility that advisors and plan sponsors share around rollover recommendations. 

Government Asks Bank to Investigate Its 401(k) Tactics

At the urging of the federal government, Wells Fargo's board of directors is investigating the bank's 401(k) practices. Specifically, the review is looking into rollovers of 401(k) plans into IRAs and whether the bank made "inappropriate referrals or recommendations" to 401(k) plan participants. The investigation into Wells Fargo's 401(k) activities adds to the list of major problems that have emerged at the bank over the past 20 months. Wells Fargo has said in filings that its sales tactics are being investigated by federal, state and local government agencies, including the Department of Labor, the Securities and Exchange Commission and the Department of Justice.

Wells Fargo Video on 401(k) Rollovers 


DOL Fiduciary Rule Addresses Rollover Recommendations

The DOL's fiduciary advice rule made the recommendation of a 401(k) plan rollover to an IRA a fiduciary act. While aimed at financial advisors who provide retirement plan services, the rule affected compliance obligations for plan sponsors as well, regulatory experts said. Plan sponsors could find themselves liable, for instance, if they contract with advisors to provide plan participants with advice that isn't in the participants' best interest, without regard to fees and commissions.
(SHRM Online

SEC's Investment Advice Proposal Includes Rollovers

While the future of the DOL's fiduciary advice rule remains in doubt, the U.S. Securities and Exchange Commission recently issued its own proposals to enhance the quality and transparency of investors' relationships with investment advisors. The proposal clarifies the fiduciary duty an investment advisor owes clients, including advice about recommendations to roll over assets from an employer-sponsored retirement plan to an IRA.
(SHRM Online). 

[SHRM members-only toolkit: Designing and Administering Defined Contribution Retirement Plans]

Departing Employees Face 401(k) Options

Polly Scott, communication and deferred compensation plan manager for the Wyoming Retirement System, identified three options for departing employees:

  • Roll retirement plan assets into the new employer's plan. "This option, hands down, is the best option as having all retirement funds in one place makes it easier to track and manage assets," Scotty said.
  • Leave retirement plan assets in the current employer's plan. Keeping a current employer's plan is also a good idea for those moving from a large employer to a small employer, where the large employer's plan has lower fees and more service offerings, Scotty noted.
  • Roll retirement plan assets into an IRA. Sophisticated individual investors may choose an IRA to have the ability to participate in tax-deferred investments not offered by employer plans, Scott noted. However, IRAs may be more costly than employer plans, which often are able to offer lower costs, achieved with the buying power and clout of their size.

(SHRM Online

Conflicted Investment Advice Lowers Retirement Savings

The decision whether to roll over one's 401(k) assets into an IRA can be confusing and the financial products that can be held in an IRA are vast. Many Americans turn to professional advisers for assistance. However, financial advisors are often compensated through fees and commissions that depend on their clients' actions. Such fee structures generate acute conflicts of interest. The best recommendation for the saver may not be the best recommendation for the adviser's bottom line.
(Council of Economic Advisors via SHRM Online)


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