Principal Stable Value Fund Challenge Ended by Judge

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 challenging the Principal Stable Value Fund’s fees and performance met its end on Oct. 31, when a federal judge dismissed all claims against two Principal subsidiaries.

The decision comes five months after another judge recommended that the proposed class action be dismissed because the man who sued had such a small investment in the fund that he stood to gain less than 1 cent if the lawsuit succeeded. In dismissing the case in full, this judge didn’t include a written explanation of her reasoning ( Austin v. Union Bond & Trust Co. , D. Or., No. 3:14-cv-00706, order granting motion to dismiss 10/31/17 ).

The lawsuit—which purported to bring claims on behalf of “several thousands” of investors—argues that the stable value fund drained their retirement savings by charging excessive fees and using an unduly conservative investment strategy that failed to keep pace with inflation. A similar lawsuit targeting CVS Health’s stable value fund was dismissed earlier this year. In March, a federal judge certified a class action accusing JPMorgan of the inverse problem—adopting an overly risky investment strategy for its fund.

Stable value funds are meant to be conservative, low-risk investment options that protect against interest rate volatility, and they’ve become a flash point in litigation under the Employee Retirement Income Security Act. Retirement plan sponsors including Anthem Inc., Chevron Corp., and Insperity Inc. have been sued—unsuccessfully—for failing to include stable value funds in their investment lineups. Other lawsuits have targeted the companies that offer and manage stable value funds, with cases pending against MassMutual and Prudential. Fidelity defeated similar claims in June.

Principal’s stable value fund was accused of investing too heavily in shorter-duration vehicles and overrelying on corporate bonds and U.S. Treasury bonds. Although this latest ruling and the May decision were thorough victories for the Principal subsidiaries, the investors scored an early win in the case when the court refused to dismiss their claims at the outset.

Senior Judge Anna J. Brown of the U.S. District Court for the District of Oregon signed the order ending the lawsuit.

The investors were represented by Stoll Stoll Berne Lokting & Shlachter PC, Keller Rohrback LLP, Schneider Wallace Cottrell Konecky & Wotkyns LLP, Edgar Law Firm LLC, and Feinberg Jackson Worthman & Wasow LLP.

The Principal subsidiaries were represented by Sidley Austin LLP and Kilmer Voorhees & Laurick PC.

To contact the reporter on this story: Jacklyn Wille in Washington at jwille@bna.com

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

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