Principal Life Agrees to $3 Million ERISA Class Action Settlement, Lower Fees

An ERISA class-action lawsuit against Principal Life accused the insurance company of overcharging employees for retirement investments in its own funds.

In what one writer called a “rare, but great victory for the average investor,” a class-action settlement was approved against Principal Life, a subsidiary of Principal Financial, which had been accused of violating its fiduciary obligations by charging excessive administrative fees to employees investing their retirement plans in Principal funds in violation of the Employee Retirement Income Security Act (ERISA).

The settlement involves a payout of $3 million into a settlement fund and an agreement by Principal to slash such fees going forward by approximately $8 million.

“This is probably the best news in this settlement since fee reductions in plans could save 401(k) and other plan participants many millions of dollars over their investing lifetimes,” wrote Chuck Epstein, a longtime critic of retirement fund fees.

Employees of Principal only had the option of investing in Principal-branded funds for their company-sponsored retirement plans. More than 15,000 employees were invested in these funds, which had more than $2 billion in assets.

These plans paid much higher investment management and advisor fees than other defined-contribution funds of similar size. Because of this settlement, Principal employees will have broader options and pay lower fees moving forward.

As Epstein wrote, “In a financial world of too-big-to-fail and too-big-to-jail financial institutions, this is a rare, but great victory for the average investor.”

The lawsuit was brought by Bailey & Glasser partner Gregory Porter of the firm’s Washington, D.C., office on behalf of Krystal Anderson and other class members.

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