The 8th Circuit Court of Appeals has upheld a lowercourt ruling dismissing an excessive-fee claim against ThePrincipal Financial Group, which served as recordkeeper to the401(k) plan sponsored by McCaffreeFinancial Corp.

|

Participants in McCaffree’s 401(k)plan alleged The Principal charged excessive fees by puttingparticipants in separate accounts that included Principal’sproprietary mutual funds.

|

That resulted in plan participants paying “grossly excessiveinvestment management and other fees” that amounted to a breach ofthe fiduciary duties of loyalty and prudence under the EmployeeRetirement Income Security Act, according to the originalcomplaint.

|

Early in 2015, those claims were dismissed in U.S. DistrictCourt for the Southern District of Iowa, on the grounds that ThePrincipal was not acting as a fiduciary in acting as the plan’srecordkeeper.

|

The 8th Circuit unanimously upheld the lower court’sdismissal.

|

In its decision, the appellate court noted that becausePrincipal was never a named fiduciary, McCaffree participantsneeded to prove the actions The Principal took administering theplan were fiduciary in nature.

|

None of the plaintiffs’ five arguments convinced the appellatecourt of as much.

|

|

In negotiating its agreement with The Principal in 2009,McCaffree remained free to reject the terms of the contract, andmove its business to another service provider, wrote the8th Circuit.

|

The Principal also was not acting in a fiduciary capacity whenit selected 29 separate accounts from 63 options McCaffreeoriginally agreed to, because McCaffree’s allegations claimed allof the fees were too high in the agreed to 63 accounts.

|

The plaintiffs also argued that The Principal was acting in afiduciary capacity because it had the authority to raise managementfees.

|

But the complaint never showed that The Principal exercised thatauthority, demonstrating to the 8th Circuit that“McCaffree seeks to evade through this lawsuit precisely those feesto which the parties contractually agreed,” according to courtdocuments.

|

And claims that The Principal provided participants investmentadvice, in effect making them a fiduciary, were irrelevant to thecore claims in the complaint—that all of separate accounts offeredto participants were too expensive.

|

“Principal’s enforcement of the terms of its contract withMcCaffree did not implicate any fiduciary duties, and McCaffreefailed to establish a connection between its excessive feeallegations and any post-contractual fiduciary duty Principal mayhave owed to plan participants,” concluded the unanimous8th Circuit, according to its ruling.

Complete your profile to continue reading and get FREE access to BenefitsPRO, part of your ALM digital membership.

  • Critical BenefitsPRO information including cutting edge post-reform success strategies, access to educational webcasts and videos, resources from industry leaders, and informative Newsletters.
  • Exclusive discounts on ALM, BenefitsPRO magazine and BenefitsPRO.com events
  • Access to other award-winning ALM websites including ThinkAdvisor.com and Law.com
NOT FOR REPRINT

© 2024 ALM Global, LLC, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.

Nick Thornton

Nick Thornton is a financial writer covering retirement and health care issues for BenefitsPRO and ALM Media. He greatly enjoys learning from the vast minds in the legal, academic, advisory and money management communities when covering the retirement space. He's also written on international marketing trends, financial institution risk management, defense and energy issues, the restaurant industry in New York City, surfing, cigars, rum, travel, and fishing. When not writing, he's pushing into some land or water.