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DC participants sue Principal Financial Group units over target-date funds

Participants in two defined contribution plans sued several units of Principal Financial Group, alleging they violated their fiduciary duties in offering certain target-date funds within the plans.

The participants claim that a series of collective investment trust-based target-date funds from Principal included as underlying investments some proprietary index funds "despite fees that were five to 15 times higher than marketplace alternatives that tracked the same index," said the lawsuit, which was filed Monday in a U.S. District Court in Des Moines, Iowa.

"Not only were the Principal index fund products far more expensive, they were also of significantly lower quality," said the complaint in Nelsen et al. vs. Principal Global Investors Trust Co. et al.

"We disagree with the allegations in this lawsuit and will vigorously contest them," Jane Slusark, a Principal spokeswoman, said in an email.

The three plaintiffs are members of the Starkey Laboratories Inc. Employee Retirement Plan or the FleetCor Technologies Inc. 401(k) Savings Plan. The sponsors are not named as defendants. As of Dec. 31, 2016, the Starkey plan, Eden Prairie, Minn., had $159.5 million in assets and the FleetCor plan, Norcross, Ga., had $103.9 million, according to their latest Form 5500s.

The lawsuit criticized the Principal defendants for a "pattern of failing to leverage the assets and the negotiating power of the Principal CITs to demand the lowest-cost vehicle." It claimed that 11 of 13 underlying investments in these CITs "failed to use the least expensive vehicle, failed to use the least expensive share class, or both."