Gross: PIMCO Guilty of “Intentional Misconduct” in Lawsuit

Nearly two years have passed since Bill Gross exited PIMCO, and the former co-founder is now urging the court to “put a stop to PIMCO’s behavior” in victimizing him.

In a new motion in his $200 million lawsuit against the Newport Beach-based firm, Gross and his lawyers claimed PIMCO has “engaged in willful and bad-faith obstruction” of Gross’ efforts to pursue the case.

Specifically, the filing alleged PIMCO proposed a deposition in London on November 2 and another in Hong Kong the next day.

“PIMCO knows that this is not possible,” Gross’ counsel continued. “Discovery is not, and should not be, a game to be manipulated in this manner. PIMCO has now cost Mr. Gross nearly a year of the case through its bad faith conduct and improper delays.”

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Furthermore, PIMCO “made no effort” to give Gross information regarding the firm’s compensation practices for other executives, he alleged—information the now-Janus executive needs “to demonstrate PIMCO’s custom and practice for compensating departing employees as well as its own interpretation of its obligation under the profit sharing plan.”

Gross’ lawsuit has asserted that he is owed a bonus of nearly $80 million for the third quarter of 2014, as well as a 20% share of PIMCO’s $1.3 billion bonus pool. Last April, PIMCO claimed that Gross “freely and knowingly waived any right he might have had to such a payment.”

To disprove this, Gross has requested records of “PIMCO’s treatment of other employees that engaged in conduct similar to what PIMCO alleges justified [his] ouster,” but the firm has also withheld such information, he claimed.

Gross is also seeking information regarding PIMCO’s investment strategy—“both before and after [his] tenure”—to show a move from “conservative and staid bond funds” to “higher-profit, higher-risk investment activities,” according to the motion.

“This drive towards ever more profit from fees and investment risk also became a drive by these younger PIMCO executives [former co-CIO Mohamed El-Erian, now-group CIO Dan Ivascyn, and others] to seize a greater share of PIMCO’s profits by wrongly terminating Mr. Gross,” the motion claimed.

Such delays in scheduling depositions, gathering evidence, and providing information “goes far beyond mere aggressive litigation,” Gross concluded, “and constitutes sanctionable discovery abuse.”

Many features college DC plans are sued over are a source of guaranteed retirement income—solutions regulators and legislators are actively seeking to add to 401(k) plans, the consultant argued.

As lawsuits against plan sponsors pile up, defined contribution (DC) plan design has been called into question.

The most recent complaints—filed against universities including Columbia, Yale, and Johns Hopkins—criticize the use of multiple recordkeepers, high number of funds to choose from, and “excessive” fees. But just how warranted are these criticisms?

“A wide range of designs can be justified based on variations in plan provisions, participant demographics, and many other factors,” NEPC said.

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In a new research note, the consulting firm’s Kevin Cress and Christine Loughlin offered a defense for some of the features these university 403(b) plans have been sued over.

For example, the use of multiple recordkeepers, they explained, stems from a standard practice in 403(b) plans of offering annuities in addition to mutual fund investments. These fixed and variable annuities—intended to offer a source of guaranteed retirement income—are typically provided by a separate recordkeeper, resulting in the multiple-recordkeeper model.

“The appropriateness of guaranteed income options is called into question by the lawsuits,” Cress and Loughlin wrote. “In contrast, legislators and regulators have been actively encouraging the adoption of lifetime income solutions in defined contribution plans.”

The pair’s defense for the abundance of fund offerings—a design element that research has shown to be detrimental to plan participants—similarly centered on annuities.

“In order to add annuities from other providers, or expand the menu to include mutual funds, plan sponsors offered more than one provider (and their platform of funds),” they wrote.

Cress and Loughlin also emphasized that 403(b) plans were a different beast from 401(k) plans—having been offered since 1958, 15 years before ERISA—and that the nonprofit employees who compose 403(b) committees and participants may prefer the “flexibility” of having numerous fund options due to their commitments to social causes.

As for the “excessive fees,” the consultants acknowledged that multiple recordkeeping structures are more expensive than plans with a single recordkeeper. But the tax-exempt status of 403(b) plan sponsors means there are other “meaningful differences” in recordkeeping costs from corporate 401(k) plans.

“The plan sponsors named in these lawsuits may need to demonstrate why their plan fees are reasonable,” they concluded. “We suspect that they will be able to do so.”