No Decision to Come in Lawsuit Over Mismanagement of TDFs

The lawsuit against Principal Global Investors and related entities was abandoned.

The plaintiffs and defendants in a lawsuit accusing Principal Global Investors Trust Co., and related entities, of Employee Retirement Income Security Act (ERISA) fiduciary breaches in the management of target-date funds (TDFs) has been voluntarily dismissed.

A participant in the Starkey Laboratories Inc. Employee Retirement Plan and two participants in the Fleetcor Technologies Inc. 401(k) Savings Plan filed the lawsuit in 2018, challenging the management of Principal LifeTime Hybrid Collective Investment Funds—collective investment trust (CIT) TDFs offered in their plans—on behalf of themselves and other similarly situated retirement plan participants.

The plaintiffs alleged fiduciary breaches regarding the selection and monitoring of the Principal CITs’ underlying investment options. They argued that the marketplace for index funds is highly competitive, particularly for large investors such as the Principal CITs, which at all relevant times had over $2 billion invested in index fund investments. Such investors can leverage their billions in investable assets to negotiate lower fees than what’s available to the vast majority of investors.

However, the plaintiffs said, the defendants did not invest in any of the competitive index fund offerings in the marketplace, choosing instead to profit themselves and their affiliates by investing exclusively in Principal’s proprietary index funds. The complaint says the fees for the underlying funds selected were five to 15 times higher than marketplace alternatives that tracked the same index, and that the funds also underperformed the alternative funds.

According to the joint stipulation filed in the U.S. District Court for the Southern District of Iowa, the parties agreed to dismiss the suit, with prejudice. “With prejudice” means the charges are dismissed for good and the plaintiffs may not file them again. The parties also stipulated “that this dismissal is not the result of any settlement, compromise or payment of any consideration to plaintiffs.”