A U.S. District judge in the Southern District of Iowa has signed off on a settlement agreement between Principal Financial and participants in its Select Savings Plan for Employees and the Select Savings Plan for Individual Field defined contribution plans.
A lawsuit against the plan provider alleged the use of proprietary funds amounted to a breach of fiduciaries' duty to prudence under the Employee Retirement Income Security Act.
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The Principal has agreed to pay out $3 million to anyone enrolled in the plans from August 7, 2008 to the point the claim was brought.
The proprietary funds came with high fees, which resulted in losses to participants' investments, alleged the plaintiffs.
The Principal denies all the allegations and maintains their conduct was entirely proper.
The practice of offering proprietary investment options is not only "exceedingly common," but also legal, said representatives of The Principal in the settlement agreement.
"Principal Life's products are offered in thousands of 401(k) retirement plans around the country, and Defendants believe there is no reason participants of the Plans should not have the option to invest in Principal Life's products," said the defendants in the settlement agreement.
The administrative costs to participants were reasonable, and in most cases, better than fees charged by The Principal's competitors, claimed defense attorneys.
Clearly, attorneys for the participants disagree. A release from Bailey and Glasser, the law firm representing the participants, said the terms of the settlement will lead to a $8 million reduction in fees going forward.
BrightScope, an analytics firm that rates 401(k) plans, says The Select Savings Plan has over 13,600 active participants and over $1.9 billion in plan assets.
The three largest funds in the Select Savings plan, in terms of amount of plan assets, are Principal Financial Group LifeTime, which holds 19 percent of participants' assets; the Principal Large Cap S&P 500 index, which holds 12 percent; and the Principal US Property fund, which holds 7 percent of assets, according to BrightScope.
In terms of fees, BrightScope ranks The Select Savings Plan in the top 15 percent of plans with the lowest fees.
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Nick Thornton
Nick Thornton is a financial writer covering retirement and health care issues for BenefitsPRO and ALM Media. He greatly enjoys learning from the vast minds in the legal, academic, advisory and money management communities when covering the retirement space. He's also written on international marketing trends, financial institution risk management, defense and energy issues, the restaurant industry in New York City, surfing, cigars, rum, travel, and fishing. When not writing, he's pushing into some land or water.
