Charles Schwab Corporation is the latest plan provider whose 401(k) is the subject of a class action Employee Retirement Income Security Act (ERISA) lawsuit. It’s starting to feel like a game show.
The lawsuit claims that plan fiduciaries engaged breached their fiduciary duty over the plan by including Schwab’s proprietary investment products as investment options within the plan and sale of their own services to the plan.
The compliant states that there was a 3 to 5 basis point difference in fees between the Schwab S&P 500 Index Fund and the other S&P 500 Index funds. While that’s small, for a plan of that size, the complaint alleges that Schwab reaped hundreds of thousands of dollars in extra fees because of that 3 to 5 basis point difference.
The lawsuit also says that Schwab 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. In 2015, more than $500 million in plan assets were invested in Schwab proprietary funds.
What do I think? This is as easy as picking ripe fruit off the vine. As long as plan providers use their own proprietary funds in their 401(k) plan, these class action lawsuits will still pop up. Mind you, you know why Schwab had Schwab products in their own 401(k) plan? It’s not to make money off their participants; it’s about keeping up appearances because how would it look if the Schwab 401(k) plan for its employees only had Vanguard funds? It wouldn’t look good, I’ll tell you that.