Judge Turns Away Principal Revenue Sharing Case Class Action Bid

Faced with overseeing a class action lawsuit that could have represented as many as 57,000 401(k) plans at the Principal Financial Group, a federal judge in Iowa has refused to certify the plaintiffs as a class.

U.S. District Judge John A. Jarvey of the U.S. District Court for the Southern District of Iowa ruled that while the proposed class was big enough to meet legal requirements, whether Principal was a fiduciary to each plan and the details of plan designs differed from client to client.

Jarvey found that the fund options offered to plan sponsors varied as did the use and delivery of Principal’s marketing materials and the amount of revenue sharing fees. Jarvey cited deposition testimony from Principal executives in which the executives asserted Principal varied its plan template from client to client and that funds depended on a number of factors, including the size, sophistication, and needs of each employer. Typically, class action members must base their claims on common questions of fact or law.

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Plaintiff Joseph Ruppert sought to represent a nationwide class of Principal 401(k) plans in which Principal had revenue sharing agreements with the mutual funds offered under these plans (see Plan Sponsor Sues Principal over 401(k) Fund Revenue Sharing). Ruppert alleged that Principal was a fiduciary to the plans and that Principal used a business model/template that provided for common ways in dealing with the plans at issue.

Jarvey said Ruppert had estimated the class would consist of 24,814 401(k) plans, but Principal argued the proposed class would include 57,000 plans.

Ruppert sued on behalf of all retirement plans for which Principal was the service provider and for which it received revenue sharing “kickbacks” from mutual funds. Ruppert charged Principal had committed an Employee Retirement Income Security Act (ERISA) fiduciary breach by compensating itself with plan assets through its arrangement with the mutual funds, and by not adequately disclosing these arrangements.

Jarvey’s latest ruling in Ruppert v. Principal Life Insurance Co., S.D. Iowa, No. 4:07-cv-0344-JAJ, 8/27/08, is available here.

New 403(b) Plan Solution Available for Small Plans

Millikin Mandt Associates, Inc. is offering what it calls “a very competitive” 403(b) plan solution focusing on the small plan (fewer than 200 employee) marketplace.

Features of the offering include:

  • Open architecture (most mutual funds are available),
  • A shares at NAV or the low cost R share,
  • Employee education meetings and investment information,
  • Online access,
  • $3,500 flat fee for recordkeeping and administration,
  • Plan document fee of $850, and
  • No set-up fee.

The firm offers its open architecture platform through Sungard Transaction Network and Mid Atlantic Trust Company. It uses its own proprietary recordkeeping software, clears trades through KMS Financial Services, and uses Lakeside Advisors for registered investment adviser services.

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“We are mindful of fees and have provided complete transparency in what is charged to plan participants and the plan sponsor,” said CEO Kurt A. Millikin and President Kristi A. Mandt, in a letter to PLANADVISER.

More information is at www.mma401k.com.

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