(Reuters) - Wells Fargo & Co (WFC.N) faces a new U.S. lawsuit claiming that it funneled more than $3 billion of employee retirement savings into expensive, underperforming proprietary mutual funds to enrich itself.
The proposed class-action lawsuit, filed on Tuesday in federal court in Minnesota, accused the third-largest U.S. bank of "self-dealing and imprudent investing" by steering 401(k)contributions to its Wells Fargo Dow Jones Target Date funds.
The lawsuit, filed by employees led by John Meiners, from St. Louis, seeks to recoup excess fees and unrealized profits stemming from Wells Fargo's alleged breach of fiduciary duties to all 401(k) participants over the last six years, the complaint said.
A Wells Fargo spokesman had no immediate comment on Friday.
Wells Fargo already faces many lawsuits over its opening of unauthorized customer accounts, in a scandal that led to last month's departure of the San Francisco-based bank's longtime chief executive, John Stumpf.
Target date funds, also known as lifecycle funds, blend mutual funds that invest in stocks, bonds and cash, shifting the mix based on investors' expected retirement dates.
According to the complaint, Wells Fargo's target date funds cost 2.5 times more than similar funds from such rivals as Fidelity Investments and Vanguard Group.
In the complaint, Meiners said the difference reflected the layering of an extra set of fees to run the funds, on top of fees to manage the underlying indexed funds.
Despite this, assets allegedly grew in part because Wells Fargo made its target date funds a default investment option, and provided an "easy" and "quick" enrollment feature.
This "generated substantial revenues for Wells Fargo" and provided "critical seed money that kept the funds afloat by boosting market share," the complaint said.
Meiners said employees could have earned $323 million more in returns in the five years ended June 30 had Vanguard target date funds been used.
Wells Fargo's 401(k) plan has about $35 billion in assets and more than 350,000 participants, the complaint said.
Lawsuits targeting alleged retirement plan mismanagement are growing more common.
Boeing Co (BA.N) settled one such lawsuit for $57 million in November 2015, and several lawsuits targeting U.S. universities were filed this summer.
A California federal judge in August refused to dismiss another such lawsuit against Pacific Investment Management Co and other units of German insurer Allianz AG (ALVG.DE).
The Wells Fargo case was assigned to U.S. District Judge David Doty in Minneapolis.
The case is Meiners v Wells Fargo & Co et al, U.S. District Court, District of Minnesota, No. 16-03981.
Reporting by Jonathan Stempel in New York; Editing by Leslie Adler