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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.; WALTER W. BETTINGER; III; 

CHARLES R. SCHWAB; JOSEPH R. 

MARTINETTO; MARTHA TUMA; JAY 

ALLEN; DAVE CALLAHAN; C. DAWN 

RORIG; JOHN C. CARK; JOHN DOES 1-50; 

and XYZ CORPORATIONS 1-5,

 Defendants.

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

FIRST AMENDED COMPLAINT

CLASS ACTION (ERISA)

Case 4:17-cv-00285-CW Document 56 Filed 06/16/17 Page 1 of 38
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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 SchwabPlan 

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 the 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 

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caused by the other defendants. 

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 

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

California.

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 C. Dawn Rorig (“Rorig”) was a member of 

the Committee during the Class Period. On information and belief, Defendant Rorig 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. Defendants John Does 6-25 are the remaining members of the Committee during 

the Class Period. 

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20. Collectively, Defendants Tuma, Allen, Callahan, Rorig, Clark and John Does 6-25 

are referred to herein as the “Committee Defendants.” 

21. 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 

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).

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

1-50 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. 

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

and John Does 26-50 and XYZ Corporations 1-5 are referred to herein as the “Schwab Fiduciary 

Defendants.” 

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

“Schwab Entity Defendants.” 

B. The Plan

25. 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 

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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. 

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

affiliates of CSC. 

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

meaning of ERISA § 3(16)(B). 

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

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

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

through the Committee.

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

Defendant CSC’s offices in San Francisco, California.

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

members of the Committee, including the Committee Defendants. 

32. 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. 

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

remove any members of the Committee at any time.

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34. 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).

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

Trust 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.

36. 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

37. 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.

III. JURISDICTION AND VENUE

38. 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. 

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

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

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

ERISA took place in this district. 

40. 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. 

41. 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. 

42. 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

43. 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. 

44. 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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45. 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.

46. 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 benefits to the participants and beneficiaries. 

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47. 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 unnecessary, 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. 

48. 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 Savings 

Account,” (3) the “Self-Directed Brokerage,” and (4) the “Interest Free Loan from Unallocated 

Plan Cash.”

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

investigation into whether these Schwab Affiliated Products and Services were prudent for the 

Plan, or whether alternative funds offered by other providers would be more appropriate, cost 

effective or better performing. 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 fees for the Schwab Entity Defendants at the expense of the Plan and its participants.

50. Moreover, not only were the Schwab Affiliated Products and Services unreasonable 

and unnecessary for purposes of prudently administering the Plan, but 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.

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1. The Affiliated Funds.

51. 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. 

52. For example, throughout the Class Period, the Schwab Fiduciary Defendants 

included the Schwab S&P 500 Index Fund as an investment option in the Plan. The Schwab S&P 

500 Index Fund is distributed by Defendant CS&Co the investment advisor is Defendant CSIM 

– thus the Schwab S&P 500 Index Fund is a “Schwab Affiliated Fund.” 

53. But other companies besides Schwab offer comparable passively managed S&P 

500 index funds, and several of those funds offer S&P 500 index funds with lower fees and with 

less tracking error than Schwab’s fund compared to the S&P 500 index itself. For example:

Table 1

S&P 500 Index Funds in 2011

Fund Ticker

2011 

Expense 

Ratio

Trackin

g Error 

– 2010

Average 

Tracking 

Error –

2008-2010

Fidelity Spartan 500 Index Fund, I FXSIX 0.05% 0.05% -0.01% *

Schwab S&P 500 Index Fund SWPPX 0.09% 0.09% 0.01%

Vanguard 500 Index Fund Admiral Class VFIAX 0.06% 0.01% -0.06% *

Vanguard Institutional Index Fund, I VINIX 0.04% 0.01% -0.07% *

* The negative tracking error indicates that the all of these funds (except the Schwab S&P 500 

Index Fund) outperformed the S&P 500 index over the period from 2008 – 2010. 

54. A prudent fiduciary investigation into which of the available S&P 500 index funds 

to include certainly would have examined facts including the funds’ fees and tracking error. Had 

the Schwab Fiduciary Defendants included any of the other funds identified on Table 1 as 

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investment options for the Plan in lieu of the Schwab S&P 500 Index Fund, it would have cost 

the Plan’s participants less to invest in a fund with a better recent history relative to their common 

benchmark, the S&P 500 index. 

55. While the 3 to 5 basis point difference in fees between the Schwab S&P 500 Index 

Fund and the other funds listed in Table 1 may seem small at first glance, the Plan had more than 

$100 million invested in the Schwab S&P 500 Index Fund each year during the Class Period, 

meaning that the Plan paid hundreds of thousands of dollars in fees more to Schwab than it would 

have paid to the other fund providers listed above even when not compounded. 

56. Since 2011, the fees for Schwab’s S&P 500 Index Fund have remained the same, 

while the fees for many of their competitors’ S&P 500 index funds, such as the Fidelity Spartan 

500 Index Fund I, have declined. In addition, other new S&P 500 index funds are now offered 

with lower fees than charged by the Schwab S&P 500 Index Fund. Thus by 2015, numerous S&P 

500 index funds with lower costs and better performance than the Schwab S&P 500 Index Fund 

were available on the market:

Table 2

S&P 500 Index Funds at 12/31/2015

Fund Ticker

2015 

Expense 

Ratio

Trackin

g Error 

– 2015

Average 

Tracking 

Error –

2013-2015

DFA US Large Company DFUSX 0.08% 0.00% 0.07%

Fidelity Spartan 500 Index Fund, I FXSIX 0.035% 0.00% 0.03%

State Street Equity 500 Index Fund -

Class K

SSSYX 0.06% 0.13% **

Schwab S&P 500 Index Fund SWPPX 0.09% 0.09% 0.11%

Vanguard 500 Index Fund Admiral Class VFIAX 0.06% 0.02% 0.04%

Vanguard Institutional Index Fund, I VINIX 0.04% 0.01% 0.03%

** Fund was launched during period.

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57. But throughout the Class Period, the Schwab Fiduciary Defendants included the 

Schwab S&P 500 Index Fund as an investment option in the Plan even though other comparable 

S&P 500 index funds were available with expenses that were comparable or lower, and in some 

cases half as much or less. Nor did the Schwab Fiduciary Defendants include any of the other 

available S&P 500 index funds with lower fees and better performance as investment options in 

addition to the Schwab S&P 500 Index Fund. 

58. But the Schwab S&P 500 Index Fund wasn’t the only Schwab Affiliated Fund that 

the Schwab Fiduciary Defendants included as an investment option in the Plan. During the Class 

Period, the Schwab Fiduciary Defendants also included seven other 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 herein).

59. Like the Schwab S&P 500 Index Fund, many of the other 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 

Index (10 basis points).

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

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Date Funds,” were far more expensive than comparable target date funds available on the market, 

and from 2008-2011, underperformed than 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 3

Target Date 

Fund –

Target 

Retirement 

Year

Schwab Target 

Date Fund Fee

Vanguard Target 

Date Fund Fee

Vanguard Target 

Date Fund 

Average 

Annualized 

Overperformance 

vs. Schwab 

Target Date 

Fund, 2008-2011

2010 0.45% 0.14% 0.42%

2015 0.45% 0.14% 0.30%

2020 0.45% 0.14% 0.31%

2025 0.45% 0.15% 0.22%

2030 0.45% 0.15% 0.26%

2035 0.45% 0.15% 0.06%

2040 0.45% 0.16% 0.44%

2045 0.45% 0.16% 0.27%

2050 0.45% 0.16% 0.41%

Income Fund 0.45% 0.14% 0.40%

62. Defendant CSBank served as the trustee for the Schwab Target Date Funds, and 

the many of the funds that the Schwab Target Date Funds were invested in were also managed by 

Schwab affiliates, meaning that the Schwab Entity Defendants received revenue from the Plan 

because the Plan included the Schwab Target Date Funds as investment options.

63. Any reasonably prudent fiduciary investigating whether to include the Schwab 

Target Date 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 

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the preceding years. As Table 3 reflects, the Vanguard Target Retirement Funds had fees more 

than 80% lower than the Schwab Target Date Funds, and materially outperformed the Schwab 

Target Date Funds during the years leading up to the start of the Class Period. Yet the Schwab 

Fiduciary Defendants continued to include the Schwab Target Date Funds as investment options 

until 2014, by which time the Plan had more than $200 million invested in the Schwab Target 

Date Funds. 

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

would have included the Schwab Affiliated Funds such as the Schwab S&P 500 Index Fund, the 

Schwab International Index Fund, the Schwab Small Cap Index Fund, the other Schwab mutual 

funds, or the Schwab Target Date 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 duties of prudence and loyalty set forth in ERISA § 404(a)(1). 

65. 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 SelfCase 4:17-cv-00285-CW Document 56 Filed 06/16/17 Page 15 of 38
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Directed 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 Savings Account.

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

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

was managed by Defendant CSBank, which collected fees of 0.4% annually, until the fund was 

terminated and liquidated effective April 30, 2012. 

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

Stable Value Fund. 

68. After the Schwab Stable Value Fund closed on April 30, 2012, until sometime in 

2014, the Schwab Fiduciary Defendants included the Schwab Value Advantage Money Fund as 

an investment option in the Plan in lieu of the Schwab Stable Value Fund. 

69. The Schwab Value Advantage Money Fund is managed by Defendant CSIM, which 

collects fees from the fund for that management. 

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70. In 2014, the Schwab Fiduciary Defendants replaced the Stable Advantage Money 

Fund with a Schwab Bank Savings Cash account (the “Schwab Savings Account”) as an 

investment option in the Plan. The Schwab Savings Account is a demand deposit account at 

Defendant CSBank that pays accountholders interest equivalent to money market rates.

71. As such, prior to 2012 the only stable value fund available to Plan participants was 

Schwab’s own Schwab Stable Value Fund, and since that time, no stable value fund has been 

available at all. 

72. Stable value funds are a common investment 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 preserve principal and provide a stable credit rate of interest. And 

“[b]ecause they hold longer-duration instruments, [stable value funds] generally outperform 

money market funds, which invest exclusively in short-term securities.” Abbott v. Lockheed 

Martin Corp., 725 F.3d 803, 806 (7th Cir. 2013); 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 

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. According to the 2015 Stable Value Study published by MetLife, over 80% of plan 

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sponsors offer a stable value fund. MetLife, 2015 Stable Value Study: A Survey of Plan Sponsors, 

Stable Value Fund Providers and Advisors at 5 (2015). The study also notes that 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.” 

Id. at 7 (emphasis added).

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

providers.

76. 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. 

77. 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 4

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%

Schwab 

Savings 

Account

2014 0.15% 1.69% 1.54%

2015 0.13% 1.77% 1.64%

78. To put the dismal return numbers for the Schwab Value Advantage Money Fund 

and Schwab Savings Account into perspective, inflation in the United States averaged 1.24% 

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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 Savings Account. Of course, had Plan participants been 

offered the option to invest in a stable value fund, 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. 

79. Schwab, on the other hand, benefited by including the Schwab Value Advantage 

Money Fund and Schwab Savings Account in the Plan in at several ways:

a. Schwab’s affiliates – Defendant CSB for the Schwab Stable Value Fund 

and Defendant CSIM for the Schwab Value Advantage Money Fund – collected management 

fees from the Plan’s money invested in those options.

b. The additional assets in the Schwab Savings Account, like all savings 

accounts, provided additional capital to Defendant CSB, allowing it to lend and invest more and 

make additional profits. Defendant CSB kept the difference, or spread, between the yield it 

returned to the holders of the Schwab Savings Account and what it made for itself lending and 

investing the additional funds to which the Schwab Savings Account gave it access. 

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

investigation into the merits of including a higher yielding stable value fund offered by another 

company in lieu of or in addition to the Schwab Stable Value Fund, the Schwab Value Advantage 

Money Fund, or the Schwab Savings Account, either at the time those investment options were 

added or on an ongoing basis as part of periodic review of the Plan’s portfolio. The Schwab 

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Fiduciary Defendants’ obligation to undertake that investigation was magnified by the obviously 

low returns the Schwab products that were included were providing to investors. Instead, on 

information and belief, the Schwab Fiduciary Defendants included the Schwab Stable Value 

Fund, the Schwab Value Advantage Money Fund and the Schwab Savings Account in lieu of 

stable value funds offered by other providers for no other reason than to generate fees for the 

Schwab Entity Defendants at the expense of the Plan’s participants. Schwab Fiduciary Defendants 

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

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

Stable Value Fund, the Schwab Value Advantage Money Fund and the Schwab Savings Account 

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

(b). 

a. CSC, CSBank 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 Schwab Stable Value Fund, 

the Schwab Value Advantage Money Fund and the Schwab Savings Account 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, Defendants’ inclusion of and failure to remove the Schwab 

Stable Value Fund, the Schwab Value Advantage Money Fund and the Schwab Savings Account 

in the Plan resulted from the 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 

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“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). 

3. Self-Directed Brokerage. 

82. In addition to the Schwab Affiliated Funds and the Schwab Savings Account listed 

above, Defendants allowed participants to invest money in Schwab’s affiliated self-direct 

brokerage system (the “Self-Directed Brokerage”), called the Schwab Personal Choice 

Retirement Account. Through the Self-Directed Brokerage, participants in the Plan could 

invested their retirement savings in a wide variety of mutual funds and other types of securities.

83. Through the Self-Directed Brokerage, Plan participants could elect to invest in 

numerous individual domestic and foreign stocks and bonds, as well as mutual funds and 

exchange-traded funds (“ETFs”). The mutual funds and ETFs included funds that were offered 

directly by Schwab or its affiliates, offered by third-parties through Schwab’s OneSource 

program, and other third-party funds. 

84. On information and belief, the Schwab Fiduciary Defendants elected to offer the 

Self-Directed Brokerage to the Plan, and elected which investments would be offered through the 

Self-Directed Brokerage Platform, as exercises of their discretionary authority in administering 

the Plan. 

85. Defendant CS&Co, itself a registered broker dealer, then physically made the SelfDirected Brokerage available to the Plan and its participants. Defendant CS&Co also held the 

accounts of the Plan and its participants in the Self-Directed Brokerage. 

86. Recordkeeping services for the Self-Directed Brokerage were provided by 

Defendant SRPS to the Plan at all relevant times.

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87. Defendant CS&Co and its affiliates collected fees from several sources arising out 

of the Plan’s participation in the Self-Directed Brokerage, including transaction fees and 

commissions and other fees to individual Plan participants who opened Self-Directed Brokerage 

accounts through the Plan. Defendants CS&Co and SRPS also received “revenue sharing” 

payments from third-party ETF and mutual fund providers whose funds were made available to 

the Plan on the Self-Directed Brokerage platform. 

88. Platforms like the Self-Directed Brokerage do provide additional investment 

options and additional opportunity to diversify. However, the Self-Directed Brokerage is not 

advantageous for all 401(k) plan investors. Indeed, its byzantine complexity and confusing 

schedule of fees alone make it inadvisable for all but the most sophisticated of investors. And the 

additional high levels of risk that investors in the Self-Directed Brokerage are able to take on can 

magnify the risks of investing exponentially. For example, an individual participant could invest 

their entire retirement savings account in the stock of a single company through the Self-Directed 

Brokerage. Yet Schwab made the Self-Directed Brokerage option available to all of the 

participants in the Plan—not just the company’s highest earners or those with the most financial 

sophistication.

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

investigation into whether a self-directed brokerage offered by another company would have been 

a better option for the Plan than Schwab’s own Self-Directed Brokerage, either at the time the 

Self-Directed Brokerage was added or on an ongoing basis as part of periodic review of the Plan’s 

portfolio. Moreover, on information and belief, the Schwab Fiduciary Defendants made no 

meaningful investigation into whether it would have been more appropriate to forgo offering any 

sort of self-directed brokerage at all, in light of the high fees and high risks associates with 

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investing through such a platform. Instead, on information and belief, the Schwab Fiduciary 

Defendants included the Self-Directed Brokerage 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 duties of prudence and loyalty set forth in ERISA § 404(a)(1). 

90. The Schwab Fiduciary Defendants’ inclusion of and failure to remove the SelfDirected Brokerage 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 Self-Directed 

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 Self-Directed Brokerage 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).

4. Interest Free Loan from Unallocated Plan Cash. 

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

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

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pending distributions and rollovers for their own benefit. 

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

Cash in accounts in the Plan’s name. 

93. 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. 

94. 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. 

95. 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. 

96. 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. 

97. 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 

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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. 

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

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

99. 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, 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’ the 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 

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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). 

V. CLASS ALLEGATIONS

100. 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 

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

as the “Class Period.”

101. 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

102. 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

103. 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; 

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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.

C. Typicality

104. 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

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

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

with their representation of the class.

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

in general and ERISA class actions in particular.

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E. Rule 23(b)(1)

108. 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.

109. 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)

110. 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.

111. 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 

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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)

112. 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 

relief will likewise predominate over individual issues.

113. 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)

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

as if fully set forth herein.

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

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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).

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

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

a. Including the Schwab Affiliated Products and Services as investment 

options within the Plan or as services for the Plan without conducting an adequate investigation 

into whether the Schwab Affiliated Products and Services were appropriate for the Plan under the 

circumstances;

b. Including the Schwab Affiliated Products and Services as investment 

options within the Plan or as services for the Plan without conducting an adequate investigation 

into whether comparable investment options were available from other providers that were more 

cost effective, had lower fees, were better performing or were otherwise more in line with the 

interests of the Plan’s participants than the Schwab Affiliated Products and Services;

c. Including the Schwab Affiliated Products and Services as investment 

options within the Plan or as services for the Plan for the purpose of benefitting the Schwab Entity 

Defendants;

d. Failing to conduct an adequate investigation into whether the Schwab 

Affiliated Products and Services were appropriate for the Plan under the circumstances as part of 

an ongoing process to monitor the Plan’s investments and service arrangements; 

e. Failing to conduct an adequate investigation into whether comparable 

investment options were available from other providers that were more cost effective, had lower 

fees, were better performing or were otherwise more in line with the interests of the Plan’s 

participants than the Schwab Affiliated Products and Services as part of an ongoing process to 

Case 4:17-cv-00285-CW Document 56 Filed 06/16/17 Page 30 of 38
31

COMPLAINT

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3

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5

6

7

8

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10

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12

13

14

15

16

17

18

19

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monitor the Plan’s investments and service arrangements; and

f. Failing to remove the Schwab Affiliated Products and Services as 

investment options within the Plan or as services for the Plan for the purpose of benefitting the 

Schwab Entity Defendants.

117. The Schwab Fiduciary Defendants’ fiduciary breaches proximately caused losses 

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

118. 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 II

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

(The Schwab Fiduciary Defendants)

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

as if fully set forth herein.

120. 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). 

121. 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. 

122. 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) & (b) by including and failing to remove the Schwab Affiliated Products and 

Services as investment options within the Plan or as services for the Plan. 

Case 4:17-cv-00285-CW Document 56 Filed 06/16/17 Page 31 of 38
32

COMPLAINT

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

123. The Schwab Fiduciary Defendants’ prohibited transactions proximately caused 

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

124. 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)

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

as if fully set forth herein.

126. 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.

127. 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 

Case 4:17-cv-00285-CW Document 56 Filed 06/16/17 Page 32 of 38
33

COMPLAINT

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

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.

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

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

129. 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)

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

as if fully set forth herein.

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

the Plan.

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

under certain circumstances. 

133. 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 

Case 4:17-cv-00285-CW Document 56 Filed 06/16/17 Page 33 of 38
34

COMPLAINT

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

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. 

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

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

135. 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)

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

as if fully set forth herein.

137. 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.

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

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

above. 

139. 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. 

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

Case 4:17-cv-00285-CW Document 56 Filed 06/16/17 Page 34 of 38
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COMPLAINT

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

violations of ERISA. 

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

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

142. 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. 

VII. 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;

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;

Case 4:17-cv-00285-CW Document 56 Filed 06/16/17 Page 35 of 38
36

COMPLAINT

1

2

3

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5

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18

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28

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: January 19, 2017 Respectfully Submitted

/s/ James A. Bloom

James A. Bloom

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

Case 4:17-cv-00285-CW Document 56 Filed 06/16/17 Page 36 of 38
37

COMPLAINT

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

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28

Garrett W. Wotkyns (pro hac vice application 

forthcoming)

John J. Nestico (pro hac vice application 

forthcoming)

SCHNEIDER WALLACE

COTTRELL KONECKY 

WOTKYNS LLP

8501 North Scottsdale Road, Suite 270

Scottsdale, Arizona 85253

gwotkyns@schneiderwallace.com

jnestico@schneiderwallace.com

T: (408) 428-0144

F: (866) 505-5036

Todd S. Collins (pro hac vice application 

forthcoming)

Shanon J. Carson (pro hac vice application 

forthcoming)

Ellen T. Noteware (pro hac vice application 

forthcoming)

BERGER & MONTAGUE, P.C.

1622 Locust Street

Philadelphia, PA 19103-6365

T: (215) 875-3000

F: (215) 875-4604 

tcollins@bm.net 

scarson@bm.net

enoteware@bm.net

Case 4:17-cv-00285-CW Document 56 Filed 06/16/17 Page 37 of 38
38

COMPLAINT

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

CERTIFICATE OF SERVICE

I hereby certify that on June 16, 2017, 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/ James A. Bloom

James A. Bloom

SCHNEIDER WALLACE

COTTRELL KONECKY WOTKYNS LLP

2000 Powell Street, Suite 1400

Emeryville, California 94608

Telephone: (415) 421-7100

Facsimile: (415) 421-7105

jbloom@schneiderwallace.com

Case 4:17-cv-00285-CW Document 56 Filed 06/16/17 Page 38 of 38