CA judge certifies class action in teachers’ lawsuit over in-plan annuity fees

A federal judge certified a class of California public-school employees in their lawsuit over in-plan annuity fees.

Plaintiff Danielle Krimbow claims that the Life Insurance Company of the Southwest improperly charged certain annuity rider fees that were not disclosed on the state’s required retirement investment website. The ruling by U.S. District Judge P. Casey Pitts of the Northern District of California also narrowed the case to exclude a second disputed rider.

The ruling allows Krimbow to represent thousands of California educators and other public employees who purchased Guaranteed Life Income Riders on the insurer’s indexed 403(b) annuity products and allegedly paid fees that differed from those disclosed on the state-sponsored website, 403bCompare.com.

The lawsuit alleges the insurer violated California’s Unfair Competition Law by charging fees that were not properly disclosed as required under the California Education Code.

Krimbow satisfied the requirements for class certification for purchasers of the GLIR, Pitts wrote, but not for purchasers of a separate “rate booster” rider.

The certified class includes California public-school employees and other eligible public workers who, between June 26, 2019, and the date the class list is prepared, purchased indexed 403(b) annuity products issued by Life Insurance Company of the Southwest and paid fees for the GLIR that were not disclosed on 403bCompare.com.

Hidden fee increases alleged

The lawsuit dates to 2023, with educators claiming the cost of the annuities ate into their 403(b) retirement plans. Life Insurance Company of the Southwest denied all claims and filed a motion to dismiss. In July 2024, Pitts granted a partial summary judgment, allowing Krimbow alone to proceed with her claim.

The initial lawsuit describes robust sales of financial products marketed to California’s more than 300,000 public school teachers. Federal law permits public schools and non-profits to offer employees tax-advantaged employer-sponsored retirement plans known as 403(b) plans. For many years, vendors did not have to fully disclose the fees associated with plan options, the lawsuit states.

“As a result of insurance companies’ aggressive marketing tactics and incomplete disclosures, teachers were often funneled into indexed annuities that came with high fees and low returns while providing huge profits for the insurance companies peddling them,” the lawsuit reads.

In 2002, the California Legislature passed a bill that included the creation of the website 403bcompare.com. The impartial website provides full product and fee information to help employees decide.

According to court documents, LICS increased the annual fee for the Guaranteed Life Income Rider from 0.75% to 0.80% in 2016 and then to 0.90% in 2019. Although the higher rates were disclosed in customers’ contracts, the insurer allegedly failed to update the fee listed on 403bCompare.com, which continued to display the original 0.75% rate.

“All of which have resulted in Defendant’s customers seeing some of the state’s lowest returns on their investments,” the lawsuit states. “Fees this high are disastrous for teachers trying to save for retirement, cutting their nest egg nearly in half by the time of their retirement.”

Didn’t visit website

Krimbow, a California public-school teacher, purchased a SecurePlus Platinum indexed annuity in September 2019 and elected the GLIR. She paid the 0.90% fee disclosed in her contract while the state website still listed the rider at 0.75%, according to the court.

“Krimbow has attested that she did not visit the website before purchasing the rider,” Pitts wrote in his decision.

The judge concluded that Krimbow’s claims were typical of other purchasers of the GLIR because they all arose from the insurer’s alleged failure to update the fee displayed on the website.

However, Pitts declined to certify claims involving the insurer’s optional “rate booster” rider because those claims involved different facts and legal issues. Unlike the GLIR, the rate booster was offered after customers had already purchased annuity contracts, and the insurer argued California law did not require it to disclose fees for riders added to discontinued products.

Life Insurance Company of the Southwest argued that individual policyholders would need to prove they actually visited 403bCompare.com before purchasing the rider. but Pitts disagreed, writing that the underlying statute prohibits charging undisclosed fees regardless of whether a customer relied on the website.

The insurer also argued some claims were barred by the statute of limitations because customers purchased their annuities before the class period began. The judge rejected that argument, concluding the alleged statutory violation occurred each time the undisclosed rider fee was charged, rather than when the annuity contract was originally purchased.

In a separate ruling, Pitts denied the parties’ joint request to seal portions of the class-certification record concerning Krimbow’s 2024 public reproval by the California Commission on Teacher Credentialing. The judge said potential embarrassment was insufficient to overcome the public’s interest in court records.

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