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SECOND AMENDED COMPLAINT 

CASE NO. 4:17-CV-00285

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Todd M. Schneider (SBN 158253)

James A. Bloom (SBN 311051)

Kyle G. Bates (SBN 299114)

SCHNEIDER WALLACE COTTRELL 

KONECKY WOTKYNS LLP

2000 Powell Street, Suite 1400

Emeryville, California 94608

Telephone: (415) 421-7100

Facsimile: (415) 421-7105

tschneider@schneiderwallace.com

jbloom@schneiderwallace.com

kbates@schneiderwallace.com

Attorneys for Plaintiff

UNITED STATES DISTRICT COURT 

NORTHERN DISTRICT OF CALIFORNIA

MICHAEL F. DORMAN, individually as a 

participant in the SCHWABPLAN 

RETIREMENT SAVINGS AND 

INVESTMENT PLAN and on behalf of a class 

of all those similarly situated,

Plaintiff,

v.

THE CHARLES SCHWAB CORPORATION; 

CHARLES SCHWAB & CO INC.; SCHWAB 

RETIREMENT PLAN SERVICES INC.; 

CHARLES SCHWAB BANK; CHARLES 

SCHWAB INVESTMENT MANAGEMENT, 

INC.; JAY ALLEN; JONATHAN BEATTY; 

BRADLEY PETERSON; KATHY 

ANDERSON; NAUREEN HASSAN; JOHN 

CLARK; BRIAN MCDONALD; ED 

OBUCHOWSKI; DAVE CALLAHAN; 

DIANE RUSSELL; MARTHA TUMA, JOHN 

DOES 12-50 and XYZ CORPORATIONS 1-5,

 Defendants.

Case No.: 4:17-CV-00285 (CW)

SECOND AMENDED COMPLAINT

CLASS ACTION (ERISA)

REDACTED VERSION OF 

DOCUMENT SOUGHT 

TO BE SEALED.

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I. NATURE OF THE ACTION 

1. The Employee Retirement Income Security Act of 1974, 29 U.S.C. § 1001 et seq. 

(“ERISA”) imposes strict fiduciary duties of prudence and loyalty on fiduciaries for ERISA covered 

retirement plans. ERISA § 404(a)(1), codified at 29 U.S.C. § 1104(a)(1). These duties, which 

require fiduciaries to act “solely in the interest of [plan] participants and beneficiaries,” ERISA § 

404(a)(1), are “the highest known to law.” Howard v. Shay, 100 F.3d 1484, 1488 (9th Cir. 1996). 

2. Plaintiff Michael F. Dorman brings this action pursuant to Sections 502(a)(2) and 

502(a)(3) of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”), 29 

U.S.C. §§ 1132(a)(2) and 1132(a)(3). Plaintiff brings this action on behalf of the Schwab Plan 

Retirement Savings and Investment Plan (the “Plan”) to obtain the relief provided under ERISA 

§ 409, 29 U.S.C. § 1109, for losses suffered by the Plan resulting from the Defendants’ fiduciary 

breaches and prohibited transactions described herein and for other appropriate equitable and 

injunctive relief under ERISA § 502(a)(3). Plaintiff brings this action on behalf of a class of 

similarly situated participants in and beneficiaries of the Plan. 

3. The claims asserted herein arise from Defendants’ imprudent and disloyal exercise 

of their discretionary fiduciary authority over the Plan to include Defendants’ own affiliated 

investment products as investment options within the Plan and sale of their own services to the 

Plan. Defendants thereby reaped significant fees and profits at the expense of the Plan and its 

participants, including Plaintiff. As a result, Defendants violated their ERISA fiduciary duties of 

prudence and loyalty, violated their co-fiduciary duties, and engaged in transactions prohibited by 

ERISA § 406(a) and (b). In addition, Defendants knowingly participated in and/or knowingly 

received the benefits from the fiduciary and co-fiduciary breaches and prohibited transactions 

caused by the other defendants. 

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II. PARTIES AND THE PLAN 

A. Defendants 

4. Defendant the Charles Schwab Corporation (“CSC”) is a Delaware corporation with 

its principal place of business in San Francisco, California. 

5. Defendant Charles Schwab & Co. Inc. (“CS&Co”) is a California corporation with 

its principal place of business in San Francisco, California. CS&Co is a wholly owned subsidiary 

of Defendant CSC. 

6. Defendant Charles Schwab Investment Management, Inc. (“CSIM”) is a Delaware 

corporation with its principal place of business in San Francisco, California. CSIM is a wholly 

owned subsidiary of Defendant CSC. 

7. Defendant Schwab Retirement Plan Services, Inc. (“SRPS”) is an Ohio corporation 

with its principal place of business in Richfield, Ohio. SRPS is a wholly owned subsidiary of 

Defendant CSC. 

8. Defendant Charles Schwab Bank (“CSBank”) is a federal savings association with 

its principal office in Reno, Nevada. CSBank is a wholly owned subsidiary of Defendant CSC. 

9. Defendant Walter W. Bettinger, III (“Bettinger”) is a member of the Board of 

Directors of CS&Co. On information and belief, Defendant Bettinger is a citizen and resident of 

California. 

10. Defendant Charles R. Schwab (“Charles R. Schwab”) is a member of the Board of 

Directors of CS&Co. On information and belief, Defendant Charles R. Schwab is a citizen and 

resident of California. 

11. Defendant Joseph R. Martinetto (“Martinetto”) is a member of the Board of Directors 

of CS&Co. On information and belief, Defendant Martinetto is a citizen and resident of California. 

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12. Defendants John Does 1-5 are the remaining members of the Board of Directors of 

CS&Co during the Class Period. 

13. Collectively, Defendants Bettinger, Charles R. Schwab, Martinetto and John Does 1-

5 are referred to herein as the “Board of Director Defendants.” 

14. On information and belief, Defendant Martha Tuma (“Tuma”) was a member of the 

Employee Benefits Administrative Committee (the “Committee”) during the Class Period. On 

information and belief, Defendant Tuma is a citizen and resident of California. 

15. On information and belief, Defendant Jay Allen (“Allen”) was a member of the 

Committee during the Class Period. On information and belief, Defendant Allen is a citizen and 

resident of California. 

16. On information and belief, Defendant Dave Callahan (“Callahan”) was a member of 

the Committee during the Class Period. On information and belief, Defendant Callahan is a citizen 

and resident of California. 

17. On information and belief, Defendant Bradley Peterson (“Peterson”) was a member 

of the Committee during the Class Period. On information and belief, Defendant Peterson is a 

citizen and resident of California. 

18. On information and belief, Defendant John C. Clark (“Clark”) was a member of the 

Committee during the Class Period. On information and belief, Defendant Clark is a citizen and 

resident of California. 

19. On information and belief, Defendant Kathy Anderson (“Anderson”) was a member 

of the Committee during the Class Period. On information and belief, Defendant Anderson is a 

citizen and resident of California. 

20. On information and belief, Defendant Naureen Hassan (“Hassan”) was a member of 

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the Committee during the Class Period. On information and belief, Defendant Hassan is a citizen 

and resident of California. 

21. On information and belief, Defendant Ed Obuchowski (“Obuchowski”) was a 

member of the Committee during the Class Period. On information and belief, Defendant 

Obuchowski is a citizen and resident of California. 

22. On information and belief, Defendant Diane Russell (“Russell”) was a member of the 

Committee during the Class Period. On information and belief, Defendant Russell is a citizen and 

resident of California. 

23. On information and belief, Defendant Brian McDonald (“McDonald”) was a member 

of the Committee during the Class Period. On information and belief, Defendant McDonald is a 

citizen and resident of California. 

24. On information and belief, Defendant Jonathan Beatty (“Beatty”) was a member of 

the Committee during the Class Period. On information and belief, Defendant Beatty is a citizen 

and resident of California. 

25. Defendants John Does 12-25 are the remaining members of the Committee during 

the Class Period. 

26. Collectively, Defendants Tuma, Allen, Callahan, Peterson, Clark, Anderson, Hassan, 

Obuchowski, Russell, McDonald, Beatty and John Does 12-25 are referred to herein as the 

“Committee Defendants.” 

27. Defendants John Does 26-50 and XYZ Corporations 1-5 are any other individuals 

and entities that were named fiduciaries for the Plan within the meaning of ERISA § 402(a), de 

facto fiduciaries for the Plan within the meaning of ERISA § 3(21)(A), or who knowingly 

participated in or received a benefit from the fiduciary breaches and prohibited transactions 

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SECOND AMENDED COMPLAINT 

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described herein and who therefore must disgorge any property in their possession that in good 

conscience belongs to the Plan pursuant to ERISA § 502(a)(3). 

28. Plaintiff has been unable to identify the individuals and entities named as John Does 

12-50 and XYZ Corporations 1-5. Plaintiff will endeavor to identify those individuals and entities 

in discovery and will seek leave to amend the complaint to name them once their identities have 

been ascertained. 

29. Collectively, CS&Co., CSC, SRPS, CSBank, CSIM, the Committee Defendants, and 

John Does 12-50 and XYZ Corporations 1-5 are referred to herein as the “Schwab Fiduciary 

Defendants.” 

30. Collectively, CS&Co., CSC, SRPS, CSBank, CSIM are referred to herein as the 

“Schwab Entity Defendants.” 

B. The Plan 

31. The Plan is an “employee pension benefit plan” pursuant to ERISA § 3(2)(A), 29 

U.S.C. § 1002(2)(A) that is designed to provide retirement income to Defendants’ employees who 

participate in the Plan. In addition, the Plan is a “defined contribution plan” and an “individual 

account plan” which provides retirement benefits “based solely upon the amount contributed to the 

participant’s account, and any income, expenses, gains and losses... which may be allocated to such 

participant’s account.” ERISA § 3(34), 29 USC § 1002(34). Thus unlike traditional defined benefit 

pensions, in a defined contribution plan like the Plan, the amount of retirement savings that 

participants (such as Plaintiff) receive at retirement is simply a matter of how much is in their 

individual accounts at the time—contributions, less fees, plus any investment returns. The Plan 

allows participants to have a portion of their wages contributed to the plan on their behalf and to 

receive matching employer contributions. 

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32. The Plan covers all eligible employees of Defendant CSC and participating affiliates 

of CSC. 

33. At all relevant times, Defendant CSC has been the sponsor of the Plan within the 

meaning of ERISA § 3(16)(B). 

34. At all relevant times, Defendant CS&Co has been the Plan Administrator for the Plan 

within the meaning of ERISA § 3(16)(A). 

35. Pursuant to the Plan, Defendant CS&Co fulfilled its administrative functions through 

the Committee.

36. Defendant CS&Co and the Committee Defendants administered the Plan at 

Defendant CSC’s offices in San Francisco, California. 

37. Defendant CS&Co., through the Board of Director Defendants, appointed the 

members of the Committee, including the Committee Defendants. 

38. Pursuant to the Plan, the Committee Defendants were required to periodically report 

to the Board of Director Defendants with respect to the Committee’s administrative functions under 

the Plan. 

39. The Plan also expressly gave the Board of Director Defendants the authority to 

remove any members of the Committee at any time. 

40. The Plan’s governing documents specify that Defendant CS&Co is a named fiduciary 

of the Plan for purposes of ERISA § 402(a), as is any “participating employer” whose employees 

participate in the Plan. On information and belief, Defendants CSC, SRPS, CSBank and CSIM are 

also “participating employers” for purposes of the Plan, and are thus also named fiduciaries for the 

Plan pursuant to ERISA § 402(a). 

41. Defendant CS&Co and the Committee Defendants retained the Charles Schwab Trust 

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Company to serve as the trustee for the Plan. In 2008, the Charles Schwab Trust Company was 

merged into Defendant CSBank, which became the Plan’s trustee by operation of the merger. 

Defendant CSBank has served as the Plan’s trustee during the remainder of the Class Period, a 

service which it provides through its Business Trust Division. 

42. Defendant CS&Co and the Committee Defendants retained Defendant SRPS to 

provide recordkeeping and related services to the Plan, services which Defendant SRPS has in fact 

provided at all relevant times.

C. Plaintiff

43. Plaintiff Michael F. Dorman is a citizen and resident of New Jersey and is a 

participant, within the meaning of ERISA § 3(7), in the Plan. During the Class Period, Plaintiff held 

the following investment options provided by the Plan, all of which were affiliated with Defendants, 

in addition to certain investments in funds that were not affiliated with Defendants: Schwab Bank 

Savings Cash Account, Schwab Managed Retirement Trust 2015 CL III, Schwab Managed 

Retirement Trust 2015 CL IV, Schwab Fundamental US Large Company Index Fund, Schwab 

Fundamental US Small Company Index Fund, Schwab Fundamental International Large Company 

Index Fund, Schwab Fundamental International Small Company Index Fund, Schwab S&P 500 

Index Fund, Schwab International Index Fund, and Schwab Small-Cap Index Fund 

III. JURISDICTION AND VENUE 

44. Plaintiff brings this action pursuant to ERISA §§ 502(a)(2) and (3), 29 U.S.C. 

§§ 1132(a)(2) and (3). This Court has subject matter jurisdiction over Plaintiff’s claims pursuant to 

ERISA § 502(e)(1), 29 U.S.C. § 1132(e)(1) and 28 U.S.C. § 1331 because this action arises under 

the laws of the United States. 

45. Venue lies in the Northern District of California pursuant to ERISA § 502(e)(2), 29 

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U.S.C. § 1132(e)(2), because several Defendants reside within or may be found in this district, the 

Plan is administered in this district, and/or the alleged breaches of the duties imposed by ERISA 

took place in this district. 

46. The Court has general personal jurisdiction over Defendants CSC, CS&Co. and 

CSIM because they are incorporated or organized in California and/or have their principal places 

of business within this district. 

47. The Court has general personal jurisdiction over the Board of Director Defendants 

and the Committee Defendants because, on information and belief, they reside in and are citizens 

of California. 

48. The Court has specific personal jurisdiction over all Defendants because they 

provided services for the Plan in this district and/or they engaged in the conduct described herein 

which took place in and/or was specifically directed towards this district. 

IV. FACTUAL ALLEGATIONS 

49. In defined contribution plans, employees’ benefits at retirement “are limited to the 

value of their own individual investment accounts, which is determined by the market performance 

of employee and employer contributions, less expenses.” Tibble v. Edison Int'l, 135 S. Ct. 1823, 

1825 (2015). Because retirement savings in defined contribution plans grow and compound over 

the course of the employee participants’ careers, poor investment performance and excessive fees 

can dramatically reduce the amount of benefits available when the participant is ready to retire. 

50. Over time, even small differences in fees and performance compound and can result 

in vast differences in the amount of savings available at retirement. As the Supreme Court has 

explained, “[e]xpenses, such as management or administrative fees, can sometimes significantly 

reduce the value of an account in a defined-contribution plan.” Tibble, 135 S. Ct. at 1825. 

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51. A 2009 study by the Government Accountability Office found that “even a seemingly 

small fee can have a large negative effect on savings in the long run. As shown in figure 1 [included 

below], an additional 1 percent annual charge for fees would significantly reduce an account 

balance at retirement.” 

Government Accountability Office, 401(K) PLANS Several Factors Can Diminish Retirement 

Savings, but Automatic Enrollment Shows Promise for Increasing Participation and Savings, No. 

10-153T. 

The Schwab Affiliated Products and Services. 

52. The Schwab Fiduciary Defendants had a fiduciary obligation to prudently and loyally 

select the investment options that would be available to the Plan’s participants. That obligation 

required the Schwab Fiduciary Defendants to carefully, skillfully, prudently and diligently 

investigate the different investment options that they could include, and to select the best and most 

cost-effective options available. In so doing, they were required to act solely in the interests of the 

participants and beneficiaries, and chose investment options for the exclusive purpose of providing 

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benefits to the participants and beneficiaries. 

53. But instead of managing the Plan solely in the interests of its participants and 

beneficiaries by carefully and prudently selecting the best and most cost-effective investment 

options available, the Schwab Fiduciary Defendants imprudently and disloyally larded the Plan 

with expensive and poorly performing investment products and services offered and managed by 

the Schwab Entity Defendants and their affiliates and which paid fees to the Schwab Entity 

Defendants – the “Schwab Affiliated Products and Services.” The Schwab Fiduciary Defendants 

included the Schwab Affiliated Products and Services in the Plan in breach of their fiduciary duties 

of prudence and loyalty. 

54. At issue in this case are several types of Schwab Affiliated Products and Services, 

categorized here for ease of reference as: (1) the “Affiliated Funds,” (2) the “Schwab Bank Savings 

Cash Account,” and (3) the “Interest Free Loan from Unallocated Plan Cash.” In addition, in 

violation of ERISA and Department of Labor (“DOL”) regulation, Defendants received excessive 

and unreasonable compensation from the operation of the Plan as a result of fees, revenue sharing 

payments and other revenues that Defendants caused the Plan to pay Defendants out of Plan assets. 

55.

 Instead, the Schwab Fiduciary Defendants imprudently and disloyally 

elected to provide the Schwab Affiliated Products and Services to the Plan in an effort to generate 

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fees for the Schwab Entity Defendants at the expense of the Plan and its participants. 

56. Moreover the fees collected by the Schwab Entity Defendants from the Plan for the 

Schwab Affiliated Products and Services were excessive, unreasonable and far exceeded the real 

costs associated with administering the Plan. 

1. The Affiliated Funds. 

57. Despite the fact that they were more expensive than comparable alternatives available 

in the market, and despite the fact that they performed no better or even, sometimes, worse than 

market peers, the Schwab Fiduciary Defendants included funds managed by the Schwab Entity 

Defendants or their affiliates (the “Schwab Affiliated Funds”) as investment options within the 

Plan. 

58. During the Class Period, the Schwab Fiduciary Defendants also included a variety of 

Schwab mutual funds, ten Schwab “target date” funds, a Schwab stable value fund, a Schwab 

money market fund, and a Schwab savings account as investment options (the stable value fund, 

money market fund, and savings account are discussed in more detail below.

59. These Schwab Affiliated Funds had higher fees and worse performance than 

comparable funds from other providers. By the year end 2015, over $500 million in Plan assets 

were invested in these Schwab Affiliated Funds. 

60. For example, the Schwab International Index Fund had fees of 19 basis points in 

2011. Other companies offered international index funds with substantially similar benchmarks, 

investment mandates and performance but lower fees, such as the Fidelity International Index Fund 

(fees of 10 basis points) and the Vanguard Developed Markets Index Fund (13 basis points). 

Similarly, the Schwab Small- Cap Index Fund had fees of 19 basis points in 2011, but other, less 

expensive small cap index funds were available in the market, including the Vanguard Small Cap 

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Index (10 basis points).

61. In addition, the “target date” funds offered by Schwab, called the “Schwab Managed 

Retirement Trust Funds”, were far more expensive than comparable target date funds available on 

the market, and from 2008-2011, underperformed their peers. For example, the Schwab Managed 

Retirement Trust Funds cost significantly more than the comparable passive target date funds 

offered by Vanguard (the “Vanguard Target Retirement Funds”), but on average performed much 

worse than the Vanguard funds between 2008-2011: 

Table 1

Target 

Retirement 

Year

Schwab Managed 

Retirement Trust

Fund Fee

Vanguard Target 

Retirement Fund 

Fee

Vanguard Target 

Retirement Fund 

Average 

Annualized 

Overperformance 

vs. Schwab 

Managed 

Retirement Trust

Fund, 2008-2011

2010 0.45%-54% 0.14% 0.42%

2015 0.45%-54% 0.14% 0.30%

2020 0.45%-54% 0.14% 0.31%

2025 0.45%-54% 0.15% 0.22%

2030 0.45%-54% 0.15% 0.26%

2035 0.45%-54% 0.15% 0.06%

2040 0.45%-54% 0.16% 0.44%

2045 0.45%-54% 0.16% 0.27%

2050 0.45%-54% 0.16% 0.41%

Income Fund 0.45%-54% 0.14% 0.40%

62. Defendants failed to prudently monitor the performance of the Schwab Managed 

Retirement Trusts, which generally performed poorly over time. For example, in the fourth quarter 

of 2010, the performance of five of the ten funds was measured on a five year basis against that of 

the applicable Schwab Managed Retirement Trust Index (the “Index”) and the applicable Mercer 

Mutual Fund Lifecycle Universe Median (the “Universe Median”). These five funds 

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underperformed in seven of the 10 comparisons. With regard to four of these funds, it was the 13th

consecutive quarter that they had underperformed the Index; for the fifth fund, it was the fifth 

consecutive quarter. 

63. A year later, in the fourth quarter of 2011, the same five funds underperformed the 

Index and the Universe Median, again measured on a five year basis, in nine separate instances. 

That is, in only one of ten instances in which these five funds were measured against the Index and 

the Universe Median on a five year basis did a fund outperform or match the comparator. With 

regard to four of the five funds, it was the 17th consecutive quarter that they had underperformed 

the Index; for the fifth fund, it was the third consecutive quarter. With regard to the four funds that 

underperformed in comparison to the Universe Median, one had underperformed for three 

consecutive quarters, two for four, and one for nine consecutive quarters. 

64. In the fourth quarter of 2012, all ten of the Schwab Managed Retirement Trust Funds 

were measured against the Index and the Universe Median on a five year basis. One of the ten 

funds underperformed the Index; for that fund it was the 21st consecutive quarter of 

underperformance. Four of the ten funds underperformed the Universe Median. For two of those 

four funds it was the second consecutive quarter of underperformance; for a third it was the eighth. 

65. In the fourth quarter of 2013, on a five-year basis, none of the ten funds 

underperformed the Index, and only two underperformed the Universe Median. However, on a three 

year basis, six of the ten funds underperformed the Index, four of them for the fourth consecutive 

quarter. 

66. Defendant CSBank served as the trustee for the Schwab Managed Retirement Trust 

Funds (which are funds of funds) and received fees from the Funds in that capacity. CSBank also 

served as trustee for many of the underlying funds that the Schwab Managed Retirement Trust 

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Funds were invested in were also managed by Schwab affiliates, meaning that the Schwab Entity 

Defendants received revenue from the Plan through its investment in the Smart Retirement Funds 

and additional compensation from the funds in which the Smart Retirement Funds were invested. 

67. Any prudent fiduciary investigating whether to include the Schwab Managed 

Retirement Trust Funds or target date funds from another provider, such as the Vanguard Target 

Retirement Funds, would have compared the relative fees and performance of those funds during 

the preceding years. As Table 1 reflects, the Vanguard Target Retirement Funds had fees more than 

80% lower than the Schwab Managed Retirement Trust Funds, and materially outperformed the 

Schwab Managed Retirement Trust Funds during the years leading up to the start of the Class 

Period. Yet the Schwab Fiduciary Defendants continued to include the Schwab Managed 

Retirement Trust Funds as investment options until 2014, by which time the Plan had more than 

$200 million invested in the Schwab Managed Retirement Trust Funds. 

68. No prudent or loyal fiduciary who performed a reasonably thorough investigation 

would have included the Schwab Affiliated Funds such as the Schwab International Index Fund, 

the Schwab Small Cap Index Fund, the other Schwab mutual funds, or the Schwab Managed 

Retirement Trust Funds during the Class Period when other comparable funds with the same 

objective, lower fees and better performance were available. On information and belief, the Schwab 

Fiduciary Defendants made no thorough investigation into whether other, less expensive, better 

performing funds might be a better fit for the Plan’s participants, either at the time each Affiliated 

Fund was added as an investment option or on an ongoing basis as part of periodic review of the 

Plan’s portfolio. Instead, on information and belief, the Schwab Fiduciary Defendants included the 

Schwab Affiliated Funds for no other reason than to generate fees for the Schwab Entity Defendants 

at the expense of the Plan’s participants. The Schwab Fiduciary Defendants therefore violated the 

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duties of prudence and loyalty set forth in ERISA § 404(a)(1). 

69. The Schwab Fiduciary Defendants’ inclusion of and failure to remove the Affiliated 

Funds in the Plan also amounted to prohibited transactions within the meaning of ERISA § 406(a) 

and (b). 

a. Defendants CSC, CS&Co., SRPS and CSIM are all parties in interest with respect to 

the plan under ERISA § 3(14), and the inclusion of and failure to remove the SelfDirected Brokerage amounted to the “furnishing of goods, services, or facilities 

between the plan and a party in interest” pursuant to ERISA § 406(a)(1)(C) and the 

“transfer to, or use by or for the benefit of a party in interest, of any assets of the plan” 

pursuant to ERISA § 406(a)(1)(D). 

b. Moreover, the Schwab Fiduciary Defendants’ inclusion of and failure to remove the 

Schwab Affiliated Funds from the Plan resulted from the Schwab Fiduciary 

Defendants “deal[ing] with the assets of the plan in [their] own interest or for [their] 

own account” in violation of ERISA § 406(b)(1), “act[ing] in any transaction 

involving the plan on behalf of a party ... whose interests are adverse to the interests 

of the plan or the interests of its participants or beneficiaries” in violation of ERISA 

§ 406(b)(2), and “receiv[ing] any consideration for [their] own personal account from 

any party dealing with such plan in connection with a transaction involving the assets 

of the plan” in violation of ERISA § 406(b)(3). 

2. Schwab Stable Value and CSBank Savings Account. 

70. Until April 30, 2012, the Schwab Fiduciary Defendants included a collective 

investment trust called the Schwab Stable Value Fund as a Plan investment option. The Schwab 

Stable Value Fund was managed by Defendant CSBank. 

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71. Stable value funds and insurance company guaranteed accounts are common 

investments in large defined contribution plans like the Plan—and they in fact are designed 

specifically for use in such plans. Stable value funds are conservatively managed to provide a stable 

rate of interest and preserve principal. These funds guarantee that a retirement plan investor will 

receive the sum of his or her contributions to the fund plus accrued interest. In other words, these 

funds guarantee against loss, and qualify as capital preservation funds. Because they hold 

longer-duration instruments (three to four-year duration), they generally outperform money market 

funds and bank deposits. 

72. According to the 2015 Stable Value Study published by MetLife, stable value returns 

were “more than double” the returns of money market funds from 1988 to 2015, and 100% of 

stable value providers and almost 90% of financial advisors to defined contribution plans “agree 

that stable value returns have outperformed money market returns over the last 25 years.” (emphasis 

added). MetLife, 2015 Stable Value Study: A Survey of Plan Sponsors, Stable Value Fund Providers 

and Advisors at 7 (2015).1

See also Paul J. Donahue, Plan Sponsor Fiduciary Duty for the Selection 

of Options in Participant-Directed Defined Contribution Plans and the Choice Between. Stable 

Value and Money Market, 39 AKRON L. REV. 9, 24 (2006) (In contrast to money market funds, 

stable value funds “can invest in longer-term financial instruments”, and thus, “Stable Value Funds 

simply outperform Money Market Funds.”). 

73. In addition to longer duration instruments generating excess returns over money 

market investments, stable value funds provide a guaranteed rate of return to the investor, referred 

to as a crediting rate, and protect against the loss of principal and accrued interest. This protection 

 

1 Available at https://www.metlife.com/assets/cao/institutionalretirement/2015StableValueStudy.pdf (last visited Feb. 9, 2016). 

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is provided through a wrap contract issued by a bank, insurance company or other financial 

institution that guarantees the book value of the participant’s investment. 

74. Since the financial crisis of 2008, readily available stable value funds and insurance 

company guaranteed accounts have provided an investment return that was ten times greater than 

most money market funds and twenty times greater than the interest paid on the CSBank Savings 

Cash Account. The actual return on the Schwab Stable Value Fund over the five-year period 

preceding the closure of the fund was twenty-five times greater than the interest paid by CSBank. 

75. At year-end 2011, the Plan had more than $135 million invested in the Schwab Stable 

Value Fund. The stated expense ratio for the Stable Value Fund was 0.015%, or 15 basis points, 

earning Defendant CSBank an annual fee of $202,500 in 2011. 

76. At some point toward the end of 2011, CSBank, as the sponsor and trustee for the 

Stable Value Fund, decided to terminate the fund in its entirety. The fund closure was announced 

at the September 2011 meeting of the EBAC. As a result of the closing of the Stable Value Fund, 

the EBAC was obligated to select a replacement. 

77. At the time, the Stable Value Fund held more than $8 billion in assets and was held 

by more than fifteen hundred retirement plans. The one-year return on the Stable Value Fund for 

the year ended March 31, 2012 was 4.52%. The fund’s average annual returns were 3.38% for the 

three-year period, and 3.84% for the five-year period, ended March 31, 2012, the period during 

which Defendants made critical decisions regarding how to replace the fund. 

78.

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79. As it turns out, the EBAC selected a blend of two separate funds as a replacement. 

Seventy percent of the Stable Value Fund was transferred to a Short Duration Bond Strategy that 

was in turn invested equally in the JPMorgan Short Duration Bond Fund and the PIMCO Low 

Duration Fund, and 30 percent was invested in the Schwab Value Advantage Money Market Fund. 

The Short Duration Bond Strategy did not provide any guarantee of principal and, therefore, did 

not qualify as a capital preservation option. 

80. Less than two years later, the EBAC, having first considered it in 2011, replaced the 

Schwab Value Advantage Money Fund and the Short Duration Bond Strategy with the Schwab 

Bank Savings Cash Account. 

81. In discovery in this action, Defendants have produced numerous Mercer evaluations 

and EBAC meeting minutes covering the entire relevant Class period, but they did not produce the 

Mercer evaluation discussed at the September 2011 EBAC meeting, or the report of an independent 

fiduciary discussed at the November 2011 EBAC meeting, or even the minutes of the January 2012 

special meeting announced at the November meeting. 

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82.

 It is reasonable to infer that none of the Mercer reports, or EBAC meeting 

minutes, or the report of an independent fiduciary would be subject to privilege, being of the same 

character as numerous other EBAC meeting minutes and related consultant reports that Defendants 

produced. 

83. One can reasonably infer from these events that there is no Mercer or independent 

fiduciary report and no minutes of a January 2012 special meeting, if such a meeting occurred. 

84. By June 2012, 

85.

86. During the short period between May 2012 and May 2014 in which the 70/30 blended 

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strategy was in place after the closing of the Stable Value Fund, CSBank received a management 

fee of 40 basis points on the amount invested in the Value Advantage Money Market ($50 million 

in 2012 and $71 million in 2013), instead of the 15 basis points it earned on the Stable Value Fund. 

87. Once assets were mapped into the Schwab Bank Savings Cash Account, CSBank 

earned at least 

 

. 

88. Defendants rely on the prohibited transaction exemption provided in ERISA § 

408(b)(4), which requires that the Plan receive a reasonable rate of interest. Whether the rate is 

reasonable depends at least in part on the amount CSBank is earning through the investment of 

deposits. Even assuming that the amount reported in the annual Revenue and Expense Analysis as 

“Bank deposit revenue from the FDIC insured accounts” was the total amount earned by CSBank 

from the investment of the Bank’s deposits, CSBank paid participants only one tenth of that amount 

as interest on the Plan’s investment in the Schwab Bank Savings Cash Account, which is not a 

reasonable rate of interest. 

89. Viewed from another perspective, while the Plan was invested in the Schwab Stable 

Value Fund, CSBank was earning only 15 basis points as an investment management fee for 

managing a portfolio of intermediate-term bonds and wrap contracts, while participants were 

earning an investment return of more than three percent. Once the transition from Stable Value to 

the Schwab Bank Savings Cash Account was complete, CSBank was receiving compensation of 

more than 1% while participants’ investment return was a meagre 12 to 15 basis points. Under the 

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circumstances, the strategy pursued by Defendants in transitioning from the Stable Value Fund to 

the 70/30 blended strategy, and then to the Schwab Bank Savings Cash Account was imprudent,

and was part of Defendants’ plan since as early as November 2011 to benefit CSBank at the expense 

of Plan participants. 

90. Additionally, by failing to pay a reasonable rate of interest, Defendants failed to meet 

the conditions required for the availability of the 408(b)(4) exemption, Defendants have caused the 

Plan to engage in prohibited transactions, including violations of ERISA § 406(a)(1)(C), § 

406(a)(1)(D), and § 406(b)(1). 

91. Moreover, Section 408(b)(4) does not contain an exemption from other provisions of 

the Act, such as a violation of Defendants’ duty of diligence and prudence set for in ERISA section 

404. 29 CFR § 2550.408b-4(a).

92. Numerous stable value funds are available in the marketplace from a variety of 

providers. 

93. The Hueler Index published by Hueler Analytics is the industry standard for reporting 

returns of stable value funds, and its index includes data on numerous stable value funds with assets 

under management exceeding $100 billion. The Hueler Index average thus represents a reasonable 

estimate of the average returns of a typical stable value fund. 

94. The average stable value returns as reflected in the Hueler index have far exceeded 

the returns of the Schwab Savings Account or the Schwab Value Advantage Money Fund: 

Table 2

Year Return Hueler Index 

Average Return

Schwab Affiliated 

Option 

Underperformance

Schwab Value 

Advantage 

Money Fund

2012 0.01% 2.26% 2.25%

2013 0.01% 1.84% 1.83%

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Schwab 

Savings 

Account

2014 0.15% 1.69% 1.54%

2015 0.13% 1.77% 1.64%

95. Another readily available fund, the MassMutual Guaranteed Interest Account, had 

an average annual return of 2.81% for the five-year period ended December 31, 2014, net of fees. 

96. The returns of the Value Advantage Money Fund and the Schwab Bank Savings 

Cash Account fail to even satisfy Schwab’s own performance standard written into its investment 

policy statement for money market funds, which requires money market funds to provide a rate of 

return that exceeds inflation. To put the dismal return numbers for the Schwab Value Advantage 

Money Fund and Schwab Bank Savings Cash Account into perspective, inflation in the United 

States averaged 1.24% annually from April, 2012 (when the Value Advantage Money Fund was 

first offered in the Plan) until year end 2015. The Schwab Value Advantage Money Fund and 

Schwab Savings Account together yielded less than 0.08% over that same period on an annual 

basis. Thus participants effectively lost more than 1% per year simply by investing money in the 

Schwab Value Advantage Money Fund or Schwab Bank Savings Cash Account. Of course, had 

Plan participants been offered the option to invest in a stable value fund or guaranteed interest 

account, not only would they have been able to keep pace with inflation, but they would have been 

able to obtain a return considerably above inflation over that period. 

97. It is also instructive to examine what funds other retirement plan sponsors unrelated 

to Defendants selected to replace the terminating Schwab Stable Value Fund. Table 3, below, lists 

38 of the most recognizable companies whose plans were among the largest that were invested in 

the Schwab Stable Value Fund at the end of 2011, and would likely have a more robust fiduciary 

process in the selection of investment funds. Thirty-five of those selected a different stable value 

fund to replace the Schwab Stable Value Fund and only three selected the Schwab Value 

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Advantage Money Fund. The list of plan sponsors selecting a different stable value fund includes 

the AICPA, Delta Dental, Enpro, Sharp Electronics, Taylor Made and United Airlines. Also 

included in that list are some of the nation’s largest and most prestigious law firms, including most 

notably, Defendants’ Defense Counsel in this case, Proskauer Rose LLP. 

Table 3

Unaffiliated Plan Replacement Fund for Schwab Stable Value Fund

American Institute Of Certified Public 

Accountants (AICPA)

Galliard Stable Value Fund

American National Bank Morley Stable Value Fund

American Suzuki Motor Corporation, 

Inc. 

Schwab Govt Money Fund

Ann Taylor, Inc. Morley Stable Value Fund

Benjamin Moore & Co. Morley Stable Value Fund

Bombardier Corporation Schwab Value Advantage Money Fund

Cirrus Logic, Inc. Galliard Stable Value Fund

Coty, Inc. Schwab Value Advantage Money Fund

Covington & Burling, LLP New York Life Insurance Company

Guaranteed Account

Delta Dental Of California Morley Stable Value Fund

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Unaffiliated Plan Replacement Fund for Schwab Stable Value Fund

Ebay Inc. Wells Fargo Bank Stable Value Fund.

Enpro Industries, Inc. Galliard Stable Value Fund

Foley & Lardner LLP Morley Stable Value Fund

Freshfields Bruckhaus Deringer Invesco National Trust Company

Interstate Battery System Of America, 

Inc. 

Federated Capital Preservation Stable Value

Japan Airlines Co., Ltd Galliard Stable Value Fund

King & Spalding LLP Galliard Stable Value Fund

Latham & Watkins LLP Morley Stable Value Fund

Maui Jim, Inc. Morley Stable Value Fund

Morrison & Foerster LLP Morley Stable Value Fund

National Association For Stock Car Auto 

Racing, Inc. (Nascar)

Morley Stable Value Fund

National Financial Partners Corp Morley Stable Value Fund

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Unaffiliated Plan Replacement Fund for Schwab Stable Value Fund

National Instrument Corporation Galliard Stable Value Fund

Nova Chemicals, Inc. New York Life Insurance Company Guaranteed 

Account

Pennsylvania State Employment Credit 

Union

Schwab Value Advantage Money Fund

Proskauer Rose LLP Wells Fargo Bank Stable Value.

Seyfarth Shaw, LLP Morley Stable Value Fund

Sharp Electronics Corporation Invesco National Trust Company

Stable Value Fund

Spectrum Medical Group, P.A. New York Life Insurance Company

Guaranteed Account

Taylor Made Golf Company, Inc. Morley Stable Value Fund

The Mohegan Tribe Of Indians Of 

Connecticut

Schwab Value Advantage Money Fund

The Western Union Company Wells Fargo Bank Stable Value Fund

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Unaffiliated Plan Replacement Fund for Schwab Stable Value Fund

Tom James Company Morley Stable Value Fund

United Airlines, Inc. (Continental 

Airlines)

Wilmington Trust Company Stable Value

Universal City Development Partners, 

Ltd

Galliard Stable Value Fund

Williams-Sonoma, Inc. Galliard Stable Value Fund

Wilson Sporting Goods Co. Galliard Stable Value Fund

Zelle Hofmann Voelbel & Mason LLP Morley Stable Value Fund

98. A review of EBAC minutes and related background materials indicates that the 

Schwab Fiduciary Defendants made no meaningful investigation into the merits of including a 

higher yielding stable value fund, insurance company guaranteed account, or similar fund offered 

by another company t for purposes of replacing the Schwab Stable Value Fund, the Schwab Value 

Advantage Money Fund, or the Schwab Savings Account, when a fiduciary decision was being 

made with respect to those funds. The Schwab Fiduciary Defendants’ obligation to undertake that 

investigation was magnified by the obviously low returns the Schwab products that were included 

among the Plan’s investment options. Instead, on information and belief, the Schwab Fiduciary 

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Defendants included the, the Schwab Value Advantage Money Fund and the Schwab Savings 

Account in lieu of stable value funds or similar funds merely to transition to the Schwab Bank 

Savings Cash Account, without properly considering better performing stable value funds. Schwab 

Fiduciary Defendants therefore violated the duties of prudence and loyalty set forth in ERISA § 

404(a)(1). 

3. Interest Free Loan from Unallocated Plan Cash. 

99. The Schwab Fiduciary Defendants also used unallocated Plan cash (the 

“Unallocated Plan Cash”) from new contributions, other assets awaiting investment, and from 

pending distributions and rollovers for their own benefit. 

100. In particular, Defendant CSBank, as the Plan’s Trustee, held the Unallocated Plan 

Cash in accounts in the Plan’s name. 

101. The Schwab Fiduciary Defendants exercised their discretionary authority to give 

Defendant CSBank discretionary authority to invest the Unallocated Plan Cash and retain as 

compensation for its services any credit, interest or other earnings it achieved on its investments 

of the Unallocated Plan Cash. 

102. While the relevant agreements between Defendant CSBank and the Plan provided 

some limitations on Defendant CSBank’s investment of the Unallocated Plan Cash, Defendant 

CSBank nevertheless had wide discretion over the investment of the Unallocated Plan Cash, and 

Defendant CSBank also had discretion to set or amend certain of the limitations those agreements 

placed on its investment of the Unallocated Plan Cash. 

103. Therefore, the Schwab Fiduciary Defendants used the Unallocated Plan Cash as an 

interest free loan to their affiliate, Defendant CSBank, which retained the proceeds for its own 

benefit and for the benefit of its corporate parent, Defendant CSC. 

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104. On information and belief, Schwab Fiduciary Defendants made no meaningful 

investigation into whether using the Unallocated Plan Cash as an interest free loan to themselves 

in this way was in the best interests of the Plan or its participants, or whether the Plan’s assets 

could have been used differently in a way that benefitted the Plan and its participants. 

105. Schwab does not publicize the amount of compensation Defendant CSBank receives 

from investing the Unallocated Plan Cash. On information and belief, the compensation Defendant 

CSBank received from investing the Unallocated Plan Cash is grossly excessive in relation to the 

services Defendant CSBank provides to the Plan. On information and belief, the Schwab Fiduciary 

Defendants made no meaningful investigation into whether the banking and trust services for 

which Defendant CSBank retains the investment proceeds from the Unallocated Plan Cash could 

have been obtained at a lower cost to the Plan and its participants, or indeed whether the 

Unallocated Plan could have been used to provide additional benefits to the Plan and its 

participants. Instead, on information and belief, the Schwab Fiduciary Defendants used the Plan 

assets – the Unallocated Plan Cash – as an interest free loan to Defendant CSBank for no other 

reason than to enrich the Schwab Entity Defendants at the expense of the Plan and its participants. 

106. The Schwab Fiduciary Defendants therefore violated the duties of prudence and 

loyalty set forth in ERISA § 404(a)(1). 

107. The Schwab Fiduciary Defendants’ use of the Plan assets as an interest free loan to 

themselves also amounted to a prohibited transaction within the meaning of ERISA § 406(a) and 

(b). 

a. Defendant CSC and Defendant CSBank are parties in interest with respect to the 

plan under ERISA § 3(14), and the use of the Plan’s assets as an interest free loan 

in exchange for services to the Plan amounted to the “furnishing of goods, services, 

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or facilities between the plan and a party in interest” pursuant to ERISA § 

406(a)(1)(C) and the “transfer to, or use by or for the benefit of a party in interest, 

of any assets of the plan” pursuant to ERISA § 406(a)(1)(D). 

b. Moreover, the Schwab Fiduciary Defendants’ use of the Plan’s assets as an interest 

free loan resulted from the Schwab Fiduciary Defendants “deal[ing] with the assets 

of the plan in [their] own interest or for [their] own account” in violation of ERISA 

§ 406(b)(1), “act[ing] in any transaction involving the plan on behalf of a party ... 

whose interests are adverse to the interests of the plan or the interests of its 

participants or beneficiaries” in violation of ERISA § 406(b)(2), and “receiv[ing] 

any consideration for [their] own personal account from any party dealing with such 

plan in connection with a transaction involving the assets of the plan” in violation 

of ERISA § 406(b)(3). 

4. Defendants Illegally Profited from the Operation of the Plan 

108. ERISA § 406(a)(1)(C) prohibits Defendants from providing services that are 

necessary for the establishment or administration of the Plan unless they meet the conditions set 

forth in ERISA § 408(b)(2) and related regulations under 29 CFR 2550.408b-2(1)(c), which 

require the service provider to disclose detailed information about all direct and indirect 

compensation expected to be received in connection with the services, and which prohibit the 

service provider from receiving more than reasonable compensation. 

109. ERISA § 408(c)(2), and related regulations and Department of Labor rulings, 

contain a special rule for determining whether compensation is reasonable in a situation where the 

plan fiduciary selects itself or an affiliate to provide services to the plan. 408(b)(2) of ERISA does 

not contain an exemption for an act of self-dealing described in section 406(b), such as dealing 

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with the assets of the plan in his own interest or for his own account, even if such act occurs in 

connection with a provision of services that is exempt under section 408(b)(2). 

110. If a fiduciary provides services to a plan without the receipt of compensation or other 

consideration other than the reimbursement of direct expenses properly and actually incurred in 

the performance of such services, the provision of such services does not, in and of itself, constitute 

an act described in section 406(b) of ERISA. Regulation Section 2550.408c-2(b)(3) provides that 

an expense is not a direct expense to the extent that it would have been sustained had the service 

not been provided or if it represents an allocable portion of overhead; the so-called “but-for” rule. 

111.

112. The special rule applies to both the reasonable compensation rule set forth in ERISA 

§ 408(b)(2) that Defendants must satisfy in order to provide recordkeeping and administrative 

services to the Plan, as well as the condition of ERISA § 408(b)(8) with respect to compensation 

received by Defendants for the management of the Schwab affiliated collective investment trusts, 

including the Schwab Managed Retirement Trusts. 

113.

114. On information and belief, Defendants did not accurately calculate the direct 

expense properly and actually incurred; meaning the expense it would not have incurred but for 

the services being provided to the Plan. Schwab maintained the Schwab Managed Retirement 

Trusts as an investment product offered to its hundreds of other retirement plan customers. 

Therefore, Defendants must demonstrate the additional expense the collective investment trusts 

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incurred as a result of the Plan’s participation in those funds. If the expenses would have been 

incurred whether or not the Schwab Pan invested in those funds, then the expenses were not 

properly reimbursable because the funds were being operated and maintained for the benefit of 

Defendants’ other retirement plan customers,. 

115.

, which, on information and belief, 

significantly exceeded Defendants’ direct expense properly and actually incurred, since the 

expenses of operating the Schwab Managed Retirement Trusts would have been incurred whether 

or not the Plan invested in those funds. 

116. Since the Defendants received more than reasonable compensation with respect to 

the Schwab Managed Retirement Trusts, the exemption provided by ERISA § 408(b)(8) is not 

available, and the Defendants have caused the Plan to engage in a prohibited transaction in 

violation of ERISA § 406(a) and 406(b)(1). 

117. Defendants have relied on the exemption provided by Prohibited Transaction Class 

Exemption 77-3, which permits a plan sponsor to select its affiliated mutual funds as investment 

options in its retirement plan. A condition of that exemption is that the plan must not pay a sales 

commission on the acquisition or redemption of the mutual fund shares. The Department of Labor 

has made it clear that that the payment of a 12b-1 Fee by a mutual fund to a plan fiduciary or 

its affiliate could not be “functionally distinguished” in many instances from the payment of a 

commission by the plan in connection with the acquisition or sale of shares in a mutual fund. 

118.

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 Having failed to meet 

the condition of the required exemption, Defendants have caused the Plan to engage in prohibited 

transactions in violation of ERISA § 406(a)(1)(A). 

119. Furthermore, all of this compensation received from the Plan’s investment in the 

collective investment trusts, the affiliated mutual funds, uninvested cash, revenue sharing from 

investments through the Personal Choice Retirement Account self-directed brokerage accounts, 

and other direct compensation or indirect compensation, must be taken into account in determining 

whether or not Defendants have received compensation for services that exceeds reimbursement 

of Defendants’ direct expense properly and actually incurred in the performance of those services.. 

86. 

120. The EBAC failed in its duty of diligence regarding Plan payments to Defendants 

with respect to Plan investments in Schwab-affiliated mutual funds and collective trusts. The 

EBAC approved financial statements and reports, including annual Revenue and Expense 

Analyses, asserted inaccurately that the amount of revenue sharing paid to Defendants by the 

Plan’s mutual funds was $0 in 2015, $258,000 in 2014, and $99,000 in 2013. In fact, as the EBAC 

should have been aware from quarterly Defined Contribution Evaluation Performance 

Evaluations, the revenue sharing was materially in excess of those amounts. 

V. CLASS ALLEGATIONS 

121. Plaintiff brings this action as a class action pursuant to Rule 23 of the Federal Rules 

of Civil Procedure on behalf of a class of all participants in and beneficiaries of the Plan at any 

time within six years of the filing of this Complaint. The period beginning six years preceding the 

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filing of the Complaint up until the time of a final judgment in this action are referred to herein 

as the “Class Period.” 

122. Excluded from the class are the following persons: (a) any of the Defendants, (b) 

any fiduciaries of the Plans; (c) any of Defendants’ officers or directors; (d) any member of the 

immediate family of and any heirs, successors or assigns of any such excluded party. 

A. Numerosity and Impracticability of Joinder 

123. Joinder of all members of the class would be impracticable based on the size of the 

class. Based on the Form 5500 filed with the Department of Labor for 2015, the Plan had more 

than 18,000 participants and/or beneficiaries. Thus the number of Class members is so large that 

joinder of all its members is impracticable. 

B. Commonality 

124. Plaintiff’s claims raise common questions of law and fact with the class including: 

a. Whether Defendants violated their ERISA fiduciary duties of prudence and loyalty 

by including Defendants’ affiliated investment products as investment options for 

the Plan; 

b. Whether Defendants engaged in transactions prohibited by ERISA by including 

Defendants’ Affiliated investment products as investment options for the Plan; 

c. Whether the Plan and its participants suffered losses as a result of Defendants’ 

fiduciary breaches and/or prohibited transactions; and 

d. Whether Defendants are liable to the Plan for restitution or constructive trust with 

respect to fees transferred to the Defendants or for disgorgement or reimbursement 

of excessive fees received by or profits generated for the Defendants as a result of 

the fiduciary breaches and/or prohibited transactions described herein. 

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C. Typicality 

125. Plaintiff’s claims are typical of the claims of the class because their claims arise 

from the same events, practices and/or course of conduct as other members of the class. Plaintiff’s 

claims challenge whether the Plan’s fiduciaries acted consistently with their fiduciary duties and 

whether their breaches caused losses or otherwise harmed the Plan and its participants. 

Additionally, the prohibited transfer of plan assets to Defendants, or the payment to the 

Defendants of excessive and unreasonable compensation, occurred at the fund level and form a 

consistent basis of the claims of all Plan participants. These are claims common to and typical of 

other Class members. Moreover, these claims seek recovery on behalf of the Plan. 

D. Adequacy 

126. Plaintiff will fairly and adequately protect the interests of the class. 

127. Defendants do not have any unique defenses against Plaintiff that would interfere 

with their representation of the class. 

128. Plaintiff has engaged counsel with extensive experience prosecuting class actions 

in general and ERISA class actions in particular. 

E. Rule 23(b)(1) 

129. The requirements of Rule 23(b)(1)(A) are satisfied in this case. Fiduciaries of 

ERISA covered plans have a legal obligation to act consistently with respect to all similarly 

situated participants and to uniformly act in the best interests of the Plan and its participants. As 

this action challenges whether Defendants acted consistently with their fiduciary duties to the 

Plan, prosecution of separate actions by individual members would create the risk of inconsistent 

or varying adjudications with respect to individual members of the Class that would establish 

incompatible standards of conduct for the fiduciaries of the Plan. 

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130. The requirements of Rule 23(b)(1)(B) are satisfied in this case. Administration of 

an ERISA plan requires that all similarly situated participants be treated consistently. As such, 

whether Defendants fulfilled their fiduciary obligations with respect to the Plan and its 

participants in this action would, as a practical matter, be dispositive of the interests of the other 

members of the Class regardless of whether they are parties to the adjudication. 

F. Rule 23(b)(2) 

131. The requirements of Rule 23(b)(2) are met in this action. Defendants have applied 

the same or substantially similar investment policies and investment options in the Plan that cover 

all members of the Class. The fiduciary breaches, co-fiduciary breaches, and prohibited 

transactions alleged against Defendants with respect to the Schwab Affiliated Products and 

Services relate to policies that applied to, respectively, all members of the Class. As such, 

Defendants have acted or refused to act on grounds generally applicable to the Class as a whole. 

132. The primary relief sought on behalf of the Class is a determination that Defendants 

breached their fiduciary duties and engaged in prohibited transactions, a determination of the 

amount by which those breaches adversely affected the Plan rather than individual members of 

the Class, and a consequent order requiring Defendants to make good those losses to the Plan. 

Such relief is accomplished by issuance of a declaration or an injunction and therefore the primary 

requested relief constitutes final injunctive or declaratory on behalf the Class with respect to the 

Plan. 

G. Rule 23(b)(3) 

133. The requirements of Rule 23(b)(3) are also satisfied. The common questions of law 

and fact concern whether Defendants breached their fiduciary duties to the Plan. Similarly, as 

relief will be on behalf of and will flow to the Plan, common questions related to remedies and 

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relief will likewise predominate over individual issues. 

134. A class action is superior to other available methods for the fair and efficient 

adjudication of this controversy. The losses suffered by many of the individual members of the 

Class are likely small, particularly in relation to the cost to bring this litigation and it would 

therefore be impracticable for individual members to bear the expense and burden of individual 

litigation to enforce their rights. The fiduciaries of the Plan have an obligation to treat all similarly 

situated participants similarly and are subject to uniform standards of conduct under ERISA; thus 

the members of the Class have an interest in having this action proceed in a single action. As 

such, no Class member has an interest in individually controlling the prosecution of this matter. 

VI. CLAIMS FOR RELIEF 

Count I 

Breach of Fiduciary Duty (ERISA § 404) 

(The Schwab Fiduciary Defendants) 

135. Plaintiff repeats and realleges each of the allegations in the foregoing paragraphs as 

if fully set forth herein. 

136. The Schwab Fiduciary Defendants were ERISA fiduciaries for the Plan pursuant to 

ERISA §§ 402(a) and/or 3(21) subject to ERISA’s fiduciary duties of prudence and loyalty. ERISA 

§ 404(a)(1)(A)-(B). 

137. As alleged above, the Schwab Fiduciary Defendants violated the duties of prudence 

and loyalty imposed by ERISA § 404(a)(1)(A)-(B) by, among other things: 

a. Failing to adequately consider and evaluate unaffiliated stable value funds, 

insurance company guaranteed accout or similar capital preservation options 

as a replacement for the terminating Schwab Stable Value Fund; 

b. Failing to adequately consider and evaluate unaffiliated stable value funds, 

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insurance company guaranteed accout or similar capital preservation options 

as a replacement for the Short Duration Bond Strategy and Schwab Value 

Advantage Money Fund when those funds were being eliminated; 

c. Retaining the Schwab Managed Retirement Trusts despite extended 

consecutive periods of underperformance and high fees compared to other 

unaffiliated and readily available alternative target date funds; 

d. Selecting the Schwab Bank Savings Cash Account as the capital preservation 

option for the Schwab Index Advantage investment option; 

e. Failing to ensure that the Schwab Bank Savings Cash Account paid 

participants a reasonable rate of interest, taking into account the amount 

CSBank was earning with respect to its investment of Plan assets held in the 

Account ; 

f. Receiving direct and indirect compensation with respect to the performance 

of services for the Plan that exceeded Defendants direct expense actually and 

properly incurred; and 

g. Retaining the Schwab Managed Retirement Trusts and Schwab Bank 

Savings Cash Account as investment options within the Plan for the purpose 

of benefitting the Schwab Entity Defendants. 

138. The Schwab Fiduciary Defendants’ fiduciary breaches proximately caused losses to 

the Plan in an amount to be determined at trial. 

139. The Schwab Fiduciary Defendants are liable to make good those losses to the Plan 

and for all other available remedies under ERISA §§ 409 and 502(a)(3). 

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Count II

Prohibited Transactions (ERISA § 406(a) & (b)) 

(The Schwab Fiduciary Defendants) 

140. Plaintiff repeats and realleges each of the allegations in the foregoing paragraphs as 

if fully set forth herein. 

141. As alleged above, the Schwab Fiduciary Defendants were ERISA fiduciaries for the 

Plan pursuant to ERISA §§ 402(a) and/or 3(21) subject to ERISA’s fiduciary duties of prudence 

and loyalty. ERISA § 404(a)(1)(A)-(B). 

142. ERISA § 406(a) prohibits ERISA fiduciaries from causing ERISA plans to engage 

in certain enumerated transactions with parties in interest, and ERISA § 406(b) prohibits ERISA 

fiduciaries from causing ERISA plans to engage in certain enumerated transactions with plan 

fiduciaries. 

143. As alleged above, the Schwab Fiduciary Defendants caused the Plan to engage in 

transaction with parties in interest with respect to the Plan and/or with Plan fiduciaries in violation 

of ERISA § 406(a)(1)(C) by retaining Schwab affiliates to perform recordkeeping and 

administrative services for the Plan and failing to ensure that the compensation paid for those 

services did not exceed the limitations set forth in ERISA § 408(c). 

144. The Schwab Fiduciary Defendants caused the Plan to engage in transactions with 

parties in interest with respect to the Plan and/or with Plan fiduciaries in violation of ERISA § 

406(a)(1)(A) by purchasing and redeeming shares of registered investment companies affiliated 

with the Schwab Fiduciary Defendants and failing to ensure that no commission was paid with 

respect to the purchase and redempotion of those registered investment company shares. 

145. The Schwab Fiduciary Defendants caused the Plan to engage in transaction with 

parties in interest with respect to the Plan and/or with Plan fiduciaries in violation of ERISA § 

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406(a)(1)(A) by acquiring interests in collective investment trusts for which CSBank served as 

trustsee and failing to ensure that CSBank received no more than reasonable compensation in 

excess of the limitations set forth in ERISA § 408(c). 

146. The Schwab Fiduciary Defendants caused the Plan to engage in transactions with 

parties in interest with respect to the Plan and/or with Plan fiduciaries in violation of ERISA § 

406(a)(1)(B), (C) and (D) by investing in a demand deposit account with CSBank and failng to 

ensure that participants received a reasonable rate of interest as required by ERISA § 408(b)(4). 

147. The Schwab Fiduciary Defendants’ prohibited transactions proximately caused 

losses to the Plan in an amount to be determined at trial. 

148. The Schwab Fiduciary Defendants are liable to make good those losses to the Plan 

and for all other available remedies under ERISA §§ 409 and 502(a)(3).

Count III

Breach of Fiduciary Duty (ERISA § 404) 

(The Board of Director Defendants)

149. Plaintiff repeats and realleges each of the allegations in the foregoing paragraphs as 

if fully set forth herein. 

150. The Board of Director Defendants were ERISA fiduciaries for the Plan pursuant to 

ERISA § 3(21) by virtue of their authority to appoint members of the Committee, and were, as 

such, subject to ERISA’s fiduciary duties of prudence and loyalty in appointing members of the 

Committee. ERISA § 404(a)(1)(A)-(B). In addition, ERISA fiduciaries with discretionary 

authority to appoint other fiduciaries have a fiduciary responsibility to monitor and evaluate the 

performance of those they appoint on an ongoing bases, and to take action, including removal of 

the appointees, to remedy any failure by the appointees to adequately fulfill their fiduciary 

obligations. 

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151. The Board of Director Defendants violated the duties of prudence and loyalty 

imposed by ERISA § 404(a)(1)(A)-(B) by, amongst other things: 

a. Failing to appropriately investigate and monitor whether Schwab Fiduciary 

Defendants were prudently fulfilling their fiduciary role by selecting the Schwab 

Affiliated Products and Services as investment options within the Plan; 

b. Failing to appropriately investigate and monitor whether Schwab Fiduciary 

Defendants were loyally fulfilling their fiduciary role by selecting the Schwab 

Affiliated Products and Services as investment options within the Plan; and by 

c. Failing to take action to correct the Schwab Fiduciary Defendants imprudence and 

disloyalty in selecting the Schwab Affiliated Products and Services as investment 

options within the Plan. 

152. The Board of Director Defendants’ fiduciary breaches proximately caused losses to 

the Plan in an amount to be determined at trial. 

153. The Board of Director Defendants are liable to make good those losses to the Plan 

and for all other available remedies under ERISA §§ 409 and 502(a)(3). 

Count IV 

Breach of Co-Fiduciary Duty (ERISA § 405) 

(The Schwab Fiduciary Defendants) 

154. Plaintiff repeats and realleges each of the allegations in the foregoing paragraphs as 

if fully set forth herein. 

155. As alleged above, the Schwab Fiduciary Defendants were ERISA fiduciaries for the 

Plan. 

156. ERISA § 405 renders ERISA fiduciaries liable for other fiduciaries’ misconduct 

under certain circumstances. 

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157. In addition to their liability for their own fiduciary breaches described above, the 

Schwab Fiduciary Defendants are liable for the breaches of the Plan’s other fiduciaries under 

ERISA § 405 because they: 

a. Knowing participated in the acts and omissions constituting those breaches despite 

knowing that those acts or omissions amounted to breaches of fiduciary duty; 

b. Failed to comply with the duties of prudence and loyalty in ERISA § 404(a)(1) in 

the administration of their own responsibilities, thereby enabling the breaches of the 

other fiduciaries; and 

c. Had knowledge of the breaches by the other fiduciaries but undertook no reasonable 

efforts under the circumstances to remedy the breaches. 

158. The Schwab Fiduciary Defendants co-fiduciary breaches proximately caused losses 

to the Plan in an amount to be determined at trial. 

159. The Schwab Fiduciary Defendants are liable to make good those losses to the Plan 

and for all other available remedies under ERISA §§ 409 and 502(a)(3). 

Count V 

Knowing Participation in and/or Benefit from Fiduciary Breaches and Prohibited 

Transactions (ERISA 502(a)(3)) 

(Schwab Entity Defendants) 

160. Plaintiff repeats and realleges each of the allegations in the foregoing paragraphs as 

if fully set forth herein. 

161. As alleged above, the Schwab Entity Defendants were the direct or indirect 

beneficiaries of the fiduciary breaches, prohibited transactions and co-fiduciary breaches alleged 

above. 

162. Moreover, in many cases the Schwab Entity Defendants participated in and/or 

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facilitated the fiduciary breaches, prohibited transactions and co-fiduciary breaches alleged above. 

163. The Schwab Entity Defendants knew of the existence of the Plan, and had actual 

and/or constructive knowledge of the circumstances that rendered the acts and omissions of the 

Schwab Fiduciary Defendants’ fiduciary breaches, co-fiduciary breaches and/or prohibited 

transactions unlawful. 

164. ERISA § 502(a)(3) permits ERISA plan participants to seek injunctive and other 

appropriate equitable relief against anyone who knowingly participants in or benefits from 

violations of ERISA. 

165. The Schwab Entity Defendants should be enjoined from further knowing 

participation in or benefitting from the violations of ERISA alleged above. 

166. In addition, the Schwab Entity Defendants must restore to the Plan all property they 

hold as a result of the Schwab Fiduciary Defendants’ fiduciary breaches, co-fiduciary breaches 

and/or prohibited transactions that in good conscience belongs to the Plan, must disgorge to the 

Plan the proceeds of such property to the extent it has been disposed of, and must disgorge any 

profits they received as a result of holding such property. 

VI. PRAYER FOR RELIEF 

WHEREFORE, Plaintiff, on behalf of himself and the Class, prays that judgment be entered 

against Defendants on all claims and requests that the Court award the following relief: 

A. Enter an order declaring that the Schwab Fiduciary Defendants breached their fiduciary 

and co-fiduciary duties under ERISA and engaged in prohibited transactions as alleged 

herein; 

B. Enter an order enjoining the Schwab Fiduciary Defendants from further breaches of their 

fiduciary and co-fiduciary duties under ERISA and from further prohibited transactions; 

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C. Enter an order requiring the Schwab Fiduciary Defendants to make good to the Plan the 

losses their fiduciary breaches, co-fiduciary breaches and/or prohibited transactions 

caused the Plan pursuant to ERISA § 409; 

D. Enter an order enjoining the Schwab Entity Defendants from further knowing 

participation in and receipt of benefit from the Schwab Fiduciary Defendants’ breaches 

of their fiduciary and co-fiduciary duties under ERISA and prohibited transactions; 

E. Enter an order requiring the Schwab Entity Defendants to disgorge to the Plan (a) any 

and all property they hold as a result of the Schwab Fiduciary Defendants’ and fiduciary 

breaches, co-fiduciary breaches and/or prohibited transactions that in good conscience 

belongs to the Plan, (b) the proceeds of such property to the extent it has been disposed 

of, and (c) any profits they received as a result of holding such property; 

F. Enter an order requiring the Schwab Fiduciary Defendants to provide a full accounting 

of all fees paid, directly or indirectly, by the Plan to the Defendants; 

G. Awarding Plaintiff and the Class their attorneys’ fees and costs pursuant to ERISA 

§ 502(g), 29 U.S.C. § 1132(g), the common benefit doctrine and/or the common fund 

doctrine; 

H. Awarding pre-judgment and post-judgment interest; and 

I. Awarding such other remedial or equitable relief as the Court deems appropriate. 

Date: October 18, 2018 Respectfully Submitted, 

/s/ John J. Nestico 

Garrett W. Wotkyns (Admitted Pro Hac Vice) 

John J. Nestico (Admitted Pro Hac Vice) 

SCHNEIDER WALLACE COTTRELL 

KONECKY WOTKYNS LLP 

8501 North Scottsdale Road, Suite 270 

Scottsdale, Arizona 85253 

Telephone: (480) 428-0141 

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Facsimile: (866) 505-5036

gwotkyns@schneiderwallace.com 

jnestico@schneiderwallace.com

James A. Bloom (SBN 311051) 

Todd M. Schneider (SBN 158253) 

James A. Bloom (SBN 311051) 

Kyle G. Bates (SBN 299114) 

SCHNEIDER WALLACE COTTRELL 

KONECKY WOTKYNS LLP

2000 Powell Street, Suite 1400 

Emeryville, California 94608 

Telephone: (415) 421-7100 

Facsimile: (415) 421-7105 

tschneider@schneiderwallace.com 

jbloom@schneiderwallace.com 

kbates@schneiderwallace.com 

Todd S. Collins (Admitted Pro Hac Vice) 

Shanon J. Carson (Admitted Pro Hac Vice) 

Ellen T. Noteware (Admitted Pro Hac Vice) 

BERGER & MONTAGUE, P.C. 

1622 Locust Street 

Philadelphia, PA 19103-6365

Telephone: (215) 875-3000 

Facsimile: (215) 875-4604 

tcollins@bm.net 

scarson@bm.net 

enoteware@bm.net 

CERTIFICATE OF SERVICE 

I hereby certify that on October 18, 2018, I electronically filed the foregoing document with 

the Clerk of the Court using the Court's CM/ECF system, which will send a notice of electronic 

filing to all CM/ECF participants. 

/s/John J. Nestico 

John J. Nestico

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