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Principal Must Deal With Class Action Challenging Excessive Fees

A lawsuit accusing Principal Life Insurance Co. of taking excessive profits from the guaranteed investment products it sells to 401(k)s has been certified as a class action.

The suit (Rozo v. Principal Life Ins. Co., S.D. Iowa, No. 4:14-cv-00463-JAJ-CFB, 5/12/17), brought by plaintiff Frederick Rozo on behalf of retirement plan participants who invested in Principal’s Principal Fixed Income Option (PFIO) plan, alleges that: (1) Principal’s discretionary control of the CCR renders it a functional fiduciary over participants’ plan assets; and (2) Principal violated ERISA by retaining compensation (the margin) it was not entitled to as a fiduciary.

Rozo was invested in the PFIO through his employer-sponsored 401(k) plan from 2008 through 2013, while other members of the class participated through 401(a) and 457 plans (in addition to 401(k) plans), according to the ruling by Chief Judge John A. Jarvey of the U.S. District Court for the Southern District of Iowa.

The ruling noted that plan participants contributed funds to the PFIO, which Principal invested in fixed-income securities, mostly bonds. Principal retained some of the return on these investments and distributed some to participants. Under the contract, Principal determined plan participants’ return on investment in the PFIO every six months using a Composite Credit Rate (CCR).

Ruling against Principal, which had argued that calculating damages across this class would be unworkable, Judge Jarvey said that Principal “…overstates the complexity, impossibility, and individuality of this task”…. and that “Once the required assessments are made, the resulting figures can be plugged into Rozo’s proposed formula to find the correct damages amount for each class member.”

In supporting the request for class certification, Judge Jarvey not only found that: (1) the class is so numerous that joinder of all members is impracticable; (2) there are questions of law or fact common to the class; (3) the claims of the representative party are typical of the claims of the class; and (4) Rozo will fairly and adequately represent the interests of the class, but that separate actions by individual plaintiffs would “create a risk of inconsistent or varying adjudications with respect to individual class members that would establish incompatible standards of conduct for Principal.”

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