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Principal 401(k) participants settle with company on excessive fees claim

Principal 401(k) participants settle with company on excessive fees claim

A federal district court judge in Des Moines, Iowa, has approved a settlement between Principal Life Insurance Co. and participants in two Principal 401(k) plans who had alleged plan executives breached their fiduciary duties by charging excessive fees for investment options and only offering proprietary funds.

Under the terms of the settlement of the class action lawsuit, approved by U.S. District Judge John Jarvey on Nov. 18, Principal will pay $3 million into a settlement fund, reduce plan expenses and make other structural changes to the plan. The settlement fund includes payment for attorneys' fees, but the exact amount could not be immediately determined.

A preliminary settlement in the case, Anderson et al. v. Principal Life Insurance Co. et al., was reached in late June. The two plans had a total of about $2 billion in assets as of Dec. 31, 2014, and all of the investment options were Principal funds, according to court documents.

The settlement agreement stated that Principal will reduce administrative expenses of the plans to seven basis points from 14 basis points. Principal also agreed to add a self-directed brokerage window to its defined contribution plans.

The participants alleged that the retirement plans used Principal investments and administrative services “because Principal, its subsidiaries and its officers benefited financially from the fees,” according to court documents.

The participants also alleged that the defendants breached their fiduciary duty by entering into a vendor relationship with Principal for administrative services “whereby the plans paid, directly or indirectly, higher than reasonable fees.”

Cutting fees will save participants “at least $8.1 million, though the employees will most likely save even more as their plans gain value,” Gregory Porter, an attorney for the participants, said in a news release issued Wednesday. “They will also be able to invest in non-Principal funds.” Mr. Porter is a partner at Bailey & Glasser L.L.P.

Principal denied wrongdoing, according to the settlement agreement. “The company states that it is entering into the agreement solely to eliminate the burden and expense of further litigation,” the agreement document said. Jaime Naig, a Principal spokeswoman, could not be reached for comment.

Robert Steyer writes for Pensions & Investments, a sister publication of Business Insurance.