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Rating:Principal Slapped With Suit Over Rollovers Not Rated 3.2 Email Routing List Email & Route  Print Print
Friday, August 31, 2007

Principal Slapped With Suit Over Rollovers

by: Armie Margaret Lee

Two women have filed suits against the Principal Financial Group alleging that the Des Moines, Iowa-based firm employed a deceptive tactic to convince them to roll over their 401(k) into an IRA bearing high fees.

The Iowa-based plaintiffs -- Jerri Young and Patricia Walsh -- filed a complaint alleging ERISA violations and a complaint alleging violations of the Securities Exchange Act of 1934 late Tuesday in the U.S. District Court for the Southern District of Iowa.

The Principal, in a statement to the Associated Press, said it disagrees with the allegations and believes that the plaintiffs have their facts wrong."

According to the suits, Principal had sent letters to pre-retirees in 401(k) plans that were administered by the firm, "misleading them to believe they were dealing with their account manager who was looking out for their interests."

The plaintiffs alleged that Principal failed to disclose that the phone number included in the letters was the phone number of sales agents at Princor Financial Services Corp., a broker-dealer unit of Principal, instead of Principal's 401(k) department.

Those sales agents, alleged the plaintiffs, tried to convince callers to roll over their 401(k) assets into a Principal IRA with a class of mutual funds called "J Shares." Such shares are the only ones the sales agents can sell to plan participants who roll over their assets, even though Principal has many classes of less expensive mutual funds it sells to everyone else, the plaintiffs alleged.

According to the Young and Walsh, the agents were paid secret and undisclosed bonuses for the sale of J Shares.

Young and Walsh are asking restitution of costs and expenses charged after the assets were moved to the IRA minus fees that would have been charged if the assets remained in the 401(k) accounts.

They are seeking class action status, saying there are hundreds of thousands of other pre-retirees who were convinced to roll over to a Principal IRA from August 28, 2002 to the present.  

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