Deals & People September 9, 2019

Principal Reveals Eagerly Awaited Wells Fargo Platform Integration Strategy

Principal is incorporating capabilities from the Wells Fargo Institutional Retirement and Trust platform into its own proprietary recordkeeping system, which will serve Principal and transitioning Wells Fargo customers moving forward.

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Principal Financial Group made public some much-anticipated details about its ongoing integration of the Wells Fargo Institutional Retirement and Trust business.

Principal’s acquisition of Wells Fargo was first announced early in 2019 and more recently made final. Through the acquisition, Principal effectively doubled the size of its U.S. retirement business, while bringing on institutional trust and custody offerings for the non-retirement market and expanding its discretionary asset management footprint.

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As explained to PLANADVISER by Renee Schaaf, Principal’s president of retirement and income solutions, the firm remains busy incorporating capabilities from the Wells Fargo recordkeeping platform into its own proprietary recordkeeping platform, “which will serve Principal and transitioning Wells Fargo customers moving forward.”

“We believe a better retirement begins with a better customer experience, both in-person and online,” she explains. “Investment in our digital capabilities in combination with our top-tier service model will enable plan sponsors to deliver more successful outcomes for their participants.”

According to Schaaf, the Principal platform, serving defined contribution and defined benefit participants, “will evolve to incorporate the best capabilities from Principal and Wells Fargo IRT.” She says Principal has accelerated investments in the Principal Total Retirement Suite (TRS) and its retirement recordkeeping system by launching “next generation financial wellness resources” such as Principal Milestones and Principal Real Start.

Schaaf adds that, with the addition of key Wells Fargo capabilities, including “deep plan benchmarking and real-time performance monitoring and feedback to promote plan health,” plan sponsors and participants will be able to seamlessly access a single service provider for multiple retirement plan types.

“We know that plan sponsors want help with gauging the effectiveness of their plan,” Schaaf says. “Wells Fargo IRT has a method to help improve this and taken alongside the Principal best-in-class experience and data automation, is a perfect example of how we’re bringing the best from each organization to drive customer outcomes.”

Schaaf claims plan sponsor clients will gain access to helpful tools and resources to manage administrative functions such as payroll processing, loans, participant notices and more. She says the firm is rolling out a chat feature for retirement plan sponsors connecting them with real-time answers to administrative questions. With the combined platform, Schaaf says, participants will benefit from tailored onboarding, education and communications.

“From the next-generation Principal Real Start onboarding experience and Retirement Wellness Score to the robust Retirement Wellness Planner, all capabilities are tailored to the participant,” Schaaf says. “Customizable features on the website enable participants to build a retirement savings dashboard that supports their priorities and outline a path to reaching goals.”

Schaaf further emphasizes how the combined platform will enable retirement specialist advisers and consultants to do more to help improve participants’ financial confidence and retirement readiness. Advisers can leverage detailed reports generated out of the participants’ online experience.

“Together, these capabilities will enable an optimal experience for plan sponsors and participants and furthers the Principal focus on customer care,” Schaaf suggests.

The enhancements to the Principal platform are expected to be available in 2020 and coincide with the transition of Wells Fargo IRT clients to the Principal platform. Upon completion of the integration, Schaaf says, Principal will have a stronger and more efficient and flexible technology offering for all Wells Fargo and existing customers.

“We remain 100% focused on bringing the best people, processes and technology together for plan sponsors and participants. Obviously this announcement is an important milestone but there is work left to do. In the remainder of 2019, we will continue to make these enhancements to the technology platform, and then throughout the late part of this year and throughout 2020 we will start working with plan sponsors on specific migration plans for them,” Schaff adds. “The idea is that the actual migration will occur sometime in 2020, depending on plan sponsors’ needs. We are very confident in the ability to migrate plan sponsors and participants in a way that is really seamless and provides for great continuity of service and customer experience.”

According to Schaaf, this means that from the plan sponsor perspective, there will be no change to the service team, no payroll formatting changes, and no losses of transaction history or other critical records. She says additional information about the transition can be found at https://www.principal.com/betterretirement.

“We will do everything we can to make this a non-event for plan sponsors and participants,” Schaaf concludes.

Compliance September 9, 2019

Lowe’s ERISA Lawsuit Clears Pre-Trial Hurdle

A District Court has affirmed most of the recommendations made by a Magistrate Judge, who previously issued a memorandum concluding the ERISA fiduciary breach case should proceed.

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Following recommendations from a Magistrate Judge a federal judge from the U.S. District Court for the Western District of North Carolina granted in part and denied in part Lowe’s Companies’ motion to dismiss an Employee Retirement Income Security Act (ERSIA) lawsuit.

The core of the fiduciary breach complaint is summarized as follows in case documents: “Lowe’s imprudently selected and retained the Hewitt Growth Fund for the Plan, in consultation with Hewitt (which served as the plan’s fiduciary investment consultant), despite the fact that (1) the Hewitt Growth Fund was a new and largely untested fund at the time it was added to the plan; (2) the Hewitt Growth Fund was underperforming its benchmark at the time it was added to the plan and continued to underperform after it was added to the plan; and (3) the Hewitt Growth Fund was not utilized by fiduciaries of any similarly-sized plans and was generally unpopular in the marketplace.”

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According to the text of the complaint, defendants placed $1 billion of the Lowe’s 401(k) plan’s assets into the new fund. At least some of the money, plaintiffs allege, was inappropriately reallocated from eight existing funds in the plan, “which were generally performing well,” when the Hewitt Growth Fund replaced these options on the investment menu.

The decision comes after the District Court conducted a de novo review of Magistrate Judge David C. Keesler’s formal memorandum and recommendation (M&R) issued in this matter. For his part, Judge Keesler recommended that the Lowe’s motion to dismiss be denied, which in turn sparked the defendants’ to file an objection to the magisterial memorandum and recommendation.

In arguing against the Magistrate Judge’s recommendation, the Lowe’s defendants asserted a variety of objections, including that the M&R inappropriate applied a relaxed pleading standard derived from an 8th U.S. Circuit Court of Appeals opinion that has not been adopted by the 4th Circuit. The defense also challenged the finding that Lowe’s had any fiduciary duty for selecting or monitoring investment choices.

The text of the new decision examines each of six distinct objections individually.

On the first objection, U.S. District Judge Kenneth D. Bell explained that the Lowe’s defendants contend that the Magistrate Judge improperly applied Braden v. Wal-Mart Stores to create a lower pleading standard for ERISA cases. However, Bell stated that Braden does not create a lower pleading standard for ERISA cases.

“Rather, Braden simply stands for the proposition that courts should draw all reasonable inferences from the totality of the allegations, and not dismiss ERISA claims because the complaint fails to allege all the specifics of the conduct that leads to the breach of fiduciary duty,” Bell wrote. “In any event, notwithstanding the Magistrate Judge’s citation of Braden, the [District Court] has undertaken a careful and holistic evaluation of the complaint as a whole in accordance with Iqbal and Twombly.”

A similar result was reached after consideration of the objection that Lowe’s status as a fiduciary to the plan can be disputed.

“Because the 4th Circuit has expressly stated that a fiduciary may either be formally designated or exist by nature of de facto performance, the plan document is not dispositive of Lowe’s status as a plan fiduciary,” the decision states. “Further, the [District Court] agrees with prior decisions in this district that whether plaintiff will be able to show the requisite degree of control over the plan is a question to be addressed at later stages of this action. Therefore, the Court will not dismiss Count I on the grounds that plaintiff failed to adequately plead that Lowe’s is a de facto fiduciary of the plan.”

One area where the new decision sides with the Lowe’s defendants has to do with its monitoring of Aon Hewitt. In short, Bell agreed with Lowe’s argument that the M&R is “incorrect in finding that plaintiff has stated a claim against Lowe’s for failure to monitor Aon Hewitt.”

“The plan document provides that the administrative committee, not Lowe’s, has sole authority to appoint Aon Hewitt,” Bell wrote. “While Lowe’s admittedly has the obligation to monitor the fiduciaries it appoints directly, it stretches the bounds of the duty to monitor too far to hold Lowe’s responsible for monitoring every fiduciary employed by the plan, including those fiduciaries which the plan explicitly envisions being appointed by the administrative committee. Accordingly, Count II is dismissed to the extent that it is based on a claim that Lowe’s had a duty to monitor Aon Hewitt.”

With this logic in mind, Lowe’s motion to dismiss Count II was denied to the extent it alleges that Lowe’s failed to monitor the administrative committee, but granted to the extent it asserts claims against Lowe’s for the failure to monitor Aon Hewitt.

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