A U.S. District Court judge in Des Moines, Iowa, ruled in favor of Principal Life Insurance Co., which had been accused of violating its ERISA duties in the way it calculated and managed a group annuity contract.
"The court finds that the product at issue in this case was offered at a competitive interest rate," U.S. District Court Judge John A. Jarvey wrote in his April 8 decision. "The interest rate was derived using sound actuarial principles. In fact, no actuary questioned the application of these principles and no criticism was done on an actuarial basis."
Principal was sued in November 2014 by Frederick Rozo in its role as service provider for the WEC Employees 401(k) Profit Sharing Plan, whose sponsor is the Western Exterminator Co. The sponsor wasn't a defendant. Mr. Rozo was a former plan participant.
In September 2018, Mr. Jarvey granted Principal's motion for summary judgment. He wrote that the company is not an ERISA fiduciary when setting interest rates for the annuity and is not a fiduciary for setting terms for the 401(k) plan to continue or terminate the contract.
However, a three-judge appeals court ruled unanimously in February 2020 that Principal was a fiduciary, reversing Mr. Jarvey's decision and remanding the case "for proceedings consistent with this opinion."
Principal appealed the case to the U.S. Supreme Court in June 2020, but the court declined in October 2020 to review. That put the case back in Mr. Jarvey's court, and he held a six-day trial.
Based on the trial and additional information, Mr. Jarvey rejected the plaintiff's claims that Principal engaged in self-dealing, had high costs and had a conflict of interest with participants in its management of the group annuity contract.
"Even if Rozo could establish self-dealing in violation of ERISA – and the court found he could not — the court finds in Principal's favor on its 'reasonable compensation' defense — ... to that claim," the judge wrote in the case of Rozo vs. Principal Life Insurance Co. "The court finds in favor of Principal and against Rozo's claim of the ERISA fiduciary duty to refrain from self-dealing."
Among the judge's reasons in supporting Principal's defense was the fact that the plaintiff's expert witness at trial wasn't an actuary.
The witness "did not conduct any actuarial analyses" in evaluating Principal's calculations, the judge wrote. "Instead, he used a hindsight analysis. The court finds his opinions wholly unpersuasive in light of the evidence of the reasonable — indeed, meticulous — process Principal used" in its calculations.
"Reasonable process provides an inference — here, a strong one — that Principal's motive was to act in 'the interest of the participants,'" the judge said, noting that Principal's process was a reason for him to reject the plaintiff's arguments that the company had violated its duty of loyalty to participants under ERISA.