Provider Argues for Arbitration in Proprietary Fund Suit

Charged with violating its fiduciary duties as a result of practices involved with including proprietary funds in its own 401(k) plan line-up, a provider says that the court “…need not even consider the viability of such implausible claims because, by virtue of arbitration agreements to which the plaintiff is bound, the Court lacks jurisdiction to hear them.”

The suit, brought earlier this year by plaintiff Christopher W. Severson, alleged “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,” charging that the defendants instead “imprudently and disloyally” chose to provide the Schwab 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.” Not only that, but that the “fees collected by the Schwab Entity Defendants from the Plan … were excessive, unreasonable and far exceeded the real costs associated with administering the Plan.”

In response, Schwab says that “Both the Plan document, to which the plaintiff, Christopher W. Severson (“Severson” or “Plaintiff”), became bound by virtue of his participation in the Plan, and a severance agreement that Severson signed in return for significant compensation contain broad arbitration provisions encompassing claims relating to the Plan, and directing that these claims be resolved with the American Arbitration Association (“AAA”).”

In the motion to compel arbitration, Schwab assert that there “…can be no question that these arbitration provisions extend to the claims asserted here. Furthermore, the Plan document explicitly waives participant rights to bring class or representative claims in arbitration”.

The filing goes on to assert that “the fact that Severson purports to bring his claims “on behalf of the Plan” under ERISA Section 502(a) does not alter the conclusion that his claims are arbitrable….the plaintiff bringing the claim is the plan participant — not the plan,” Schwab asserts.

The case is Severson v. Charles Schwab Corp., N.D. Cal., No. 4:17-cv-00285, motion to compel arbitration filed 4/7/17.

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