Principal Life Must Defend Class Action Over 401(k) Funds

Employee Benefits News examines legal developments that impact the employee benefits and executive compensation employers provide, including federal and state legislation, rules from federal...

By Jacklyn Wille

A lawsuit accusing Principal Life Insurance Co. of reaping excessive profits from the guaranteed investment products it sells to 401(k) investors is moving forward as a class action ( Rozo v. Principal Life Ins. Co. , S.D. Iowa, No. 4:14-cv-00463-JAJ-CFB, 5/12/17 ).

In certifying a proposed class of about 41,000 investors, a federal judge in Iowa held on May 12 that the lawsuit involved common issues related to Principal’s conduct and potential status as a fiduciary under the Employee Retirement Income Security Act. Further, the dispute could be resolved through a formulaic damages model, making class certification appropriate, the judge said.

The lawsuit attacks Principal’s guaranteed interest funds, which are low-risk 401(k) investments held for a contractually determined period. The investors say that Principal reaps unreasonable profits from these investments by paying investors too small a portion of the returns Principal receives from the underlying investments.

Several financial companies have been sued over the guaranteed investments they offer, and many lawsuits have seen early success. In recent months, judges have forced Principal, Metropolitan Life Insurance Co., Prudential Retirement Insurance & Annuity Co. and Great-West Life & Annuity Insurance Co. to defend their guaranteed investment products from proposed class action challenges. A similar case is pending against Massachusetts Mutual Life Insurance Co.

By contrast, New York Life Insurance Co. saw more success in defending its guaranteed investment products. A proposed class action making similar claims was voluntarily dismissed two days after a federal judge expressed doubt that the investors suing New York Life could proceed with their claims.

In this ruling against Principal, the judge said that the “core of the case” centers on Principal’s management of the challenged guaranteed investment products, which was governed by a uniform contract and standardized terms applicable to all investors. Principal argued that calculating damages on a classwide basis would be unworkable, but the judge disagreed, saying that damages could be calculated by inputting the relevant figures into the investors’ proposed damages formula.

Chief Judge John A. Jarvey of the U.S. District Court for the Southern District of Iowa wrote the decision.

The investors are represented by Zelle LLP, Schneider Wallace Cottrell Konecky LLP and Feinberg Jackson Worthman & Wasow LLP. Principal is represented by Nyemaster Goode PC and Sidley Austin LLP.

To contact the reporter on this story: Jacklyn Wille in Washington at

To contact the editor responsible for this story: Jo-el J. Meyer at

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