According to a notice provided to plans invested in the Principal U.S. Property Separate Account, on January 29, 2010, payments were made available to partially satisfy approximately 13% of the value of transaction requests subject to the withdrawal limitation imposed by the real estate fund on September 26, 2008 (see Principal Real Estate Fund Hold Draws Lawsuit). Principal said that this payment was applied to transaction requests made prior to 3:00 p.m. CT on January 28, 2010.
Payments are being made on a pro-rata basis and will be determined based on unit values at the time of payment, according to the announcement. Distributions were made on a pro-rata basis, rather than “first in, first out”, a decision that Principal described as being “in the best interest of all Separate Account participants.” If a participant’s total transactions requested were valued at more than $300, the participant received a pro-rata share of the requests. The pro rata percentage was approximately 13%.
If a participant’s pro rata share totaled less than $300, $300 was pro-rated across all of their requests subject to the withdrawal limitation, according to the announcement. Principal noted that some participants made more than one withdrawal request, and if the total transactions requested for a participant were valued less than $300 on Thursday, January 28, 2010, they were satisfied in full.
The proportion of the liquidity that the participant will receive is determined using the unit value on Thursday, January 28, 2010. The payments will be made effective on Friday, January 29, 2010. Values may differ due to the one-day change in unit value, according to the communication.
In making the announcement, the Principal said that the fund now had sufficient liquidity to allow partial payments for a variety of reasons, two important ones being “successful property sales and proceeds from those sales that exceed near-term current and projected obligations”. Principal cautioned that nationwide property sales volume is still below the 2007 peak by approximately 90%, but said that “despite this, the Separate Account closed nearly $630 million in sales during the second half of 2009.”
Principal noted that property sales will continue to be the primary contributor to funds available for distribution. “The Separate Account has identified over $900 million in potential property dispositions, some of which has property level debt. The dollar amount and timing of additional distributions will be dependent upon success in executing these sales,” according to the notice.
Principal said that notification of the distribution of assets was provided on Friday, January 29, 2010, beginning at 5 p.m. CT, by e-mail that was sent to all plan participants with at least one transaction subject to the withdrawal limitation for which we have a current e-mail address. This notification was also provided to impacted plan participants via their personalized retirement account information on the Principal’s web site.
In an accompanying Q&A, Principal confirmed that the Department of Labor (DOL) has investigated inquiries from various plans regarding the limitation of withdrawals from the Principal U.S. Property Separate Account, and said that it has responded to these inquiries “by explaining the nature of the Separate Account and the reasons why immediate distributions are not available”. Principal also acknowledged that the Department of Labor has contacted some Plan Sponsors about the withdrawal limitation and noted that “we have prepared information to assist these plan sponsors in responding to DOL inquiries”.
The Seattle-based law firm of Keller Rohrback has filed a lawsuit alleging that Principal breached its fiduciary duties under ERISA by managing the investment of the retirement assets in the Property Account “inconsistently with the Property Account’s stated objective to maintain adequate liquidity to provide for daily withdrawals” (see Principal Real Estate Fund Hold Draws Lawsuit).
As of Saturday January 30, 2010, Principal said that defined contribution plan participants can view the status of the payment or update investment transfer requests via their plan participant Web site at principal.com.