Charles Schwab Seeks to Arbitrate 401(k) Investment Case

Employee Benefits News examines legal developments that impact the employee benefits and executive compensation employers provide, including federal and state legislation, rules from federal...

By Carmen Castro-Pagan

Charles Schwab Corp. urged a federal court to order a former employee challenging the investment options in the company’s 401(k) plan to submit his claims to individual, non-class arbitration ( Severson v. Charles Schwab Corp. , N.D. Cal., No. 4:17-cv-00285, motion to compel arbitration filed 4/7/17 ).

The plan documents required participants to submit any claims arising out of or related to the plan to binding arbitration in a non-class basis, Charles Schwab alleged April 7 in its motion to compel arbitration. Christopher W. Severson—who filed the lawsuit individually seeking class treatment—also entered into a severance agreement in which he allegedly agreed not to sue Charles Schwab and to submit any dispute related to his employment to arbitration, the financial company alleged.

Arbitration in Employee Retirement Income Security Act class actions involving plan fees and investment options has been in the headlines lately. Earlier this year, a federal judge denied the University of Southern California’s request to arbitrate a lawsuit brought by participants challenging the administration of their retirement plan. In February, information technology giant DST Systems Inc. moved to arbitrate a proposed class action by workers challenging the amount of Valeant Pharmaceuticals International Inc.'s stock in their retirement plan.

Charles Schwab, however, may be one of the first financial companies facing an ERISA lawsuit over its use of in-house funds in which the claims move to arbitration. More than 20 financial institutions are facing similar class actions, including BlackRock Inc., T.Rowe Price Group Inc., JPMorgan Chase N.A. and Wells Fargo & Co. So far judges have been reluctant to give early wins to other companies by refusing to dismiss cases against BB&T Corp., Allianz, Deutsche Bank and others.

Charles Schwab argued that Severson is bound to arbitrate his claims before the American Arbitration Association by virtue of his participation in the plan and the severance agreement he signed.

The arbitration clauses in the plan document and the severance agreement allow only individual claims to be asserted in arbitration, according to the company. The plan document explicitly provides that class claims are waived in arbitration, Charles Schwab alleged. Similarly, the severance pact showed no agreement to authorize class claims, the company argued.

If the case isn’t referred to arbitration, the company intends to seek an immediate appeal under the Federal Arbitration Act, Charles Schwab said in its motion.

Schneider Wallace Cottrell Konecky Wotkyns LLP and Berger Montague P.C. represent Severson. Proskauer Rose LLP and Shepherd Finkelman Miller & Shah LLP represent Charles Schwab.

To contact the reporter on this story: Carmen Castro-Pagan in Washington at

To contact the editor responsible for this story: Jo-el J. Meyer at

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