Jerri Young, of West Des Moines, Iowa, and Patricia Walsh, of Ankeny, Iowa, near Des Moines alleged in two federal court lawsuits filed this week that Principal’s rollover scheme started when they were sent letters last year telling them to call Principal about their accounts.
The purpose of the “manipulative and deceptive” scheme, according to the suits, was to “dislodge assets of retirement accounts” of its participants.Young rolled over $68,887 from her company 401(k) retirement account and purchased mutual funds in a Principal-managed IRA in June 2006. Walsh said she rolled over $38,727 in September 2006.
One suit alleged violations of the Employee Retirement Income Security Act (ERISA) and the other violations of T he Securities Exchange Act Of 1934
The plaintiffs charged thatPrincipal sent the letters to pre-retirees as young as 58, “misleading them to believe they were dealing with their account manager who was looking out for their interests,” after obtaining names and addresses of employees nearing retirement from Principal-managed 401(k) accounts.
The plaintiffs moved for the their cases to be certified as a class actions to represent what the suits said were hundreds of thousands of Principal plan participants contacted regarding IRA rollovers into Principal’s J-Shares.
Young and Walsh charged that the letters did not make clear that the phone number participants were asked to call was not its regular participant call center, but instead led to sales agents at Princor Financial Services Corp., a Principal subsidiary broker/dealer.
According to the lawsuits J-Shares are the only mutual funds Principal sells to retirement plan participants who roll over their assets, although the company has several classes of less expensive mutual funds it sells everyone else. The women claim the sales agents were paid secret bonuses and commissions out of the high internal expenses of the J-Shares. Because of the high fees, the plaintiffs said they ended up paying more to Principal than if they had stayed in their 401(k) plans.
Also, Principal did not give larger IRA investors volume discounts in the J-Shares, the suits alleged.
The company denied wrongdoing in a written statement.
“The Principal Financial Group will aggressively defend against the allegations in these lawsuits,” Principal said in its statement. “We disagree with the plaintiff’s legal assertions and believe they have their facts wrong. Voted one of the world’s most ethical companies this year by Ethisphere Magazine, our sales practices meet or exceed legal requirements. Integrity is our most important core value and the foundation of how we conduct business. We make every effort to ensure our business conduct fully satisfied our high ethical standards. “
The lawsuit alleging ERISA violations is here .