Skip to main content
Message Font: Serif | Sans-Serif
 
No. of Recommendations: 0
With all the discussion concerning 401(k) taxes, loans, and fiduciary responsibilities of employers, perhaps the most important consideration when investing in a 401(k) is your due diligence efforts to assure the investment is secure and you won't lose your money later to corruption or self dealing by, for example, the service provider. In fact, the institutional investor is at the top of the list where money laundering of investor's money is concerned.

Your employer can be held accountable as a fiduciary under ERISA for suitability factors such as fees, and as an employee you can enforce fiduciary breaches through litigation, but not many employees want to sue their boss.

This thread will focus on methods you use as a 401(k) investor to investigate the service provider you are giving your money to... for example, when you invest in an annuity through an insurance company, state regulations usually require that the service provider owns the plan assets, and you become a class two investor. If something goes wrong, you will get your money back only after all expenses get paid, including the service provider's fees... comments anyone?
Print the post Back To Top
No. of Recommendations: 3
I've not heard of a lot of cases where an employer absconds with 401k contributions - usually once the money goes from your paycheck to the plan administrator, it's out of the employer's hands. Now the employer may negotiate an agreement for a 401k plan that reduces employer costs but leaves employees with lots of fees. However, I've not heard a lot of cases where a plan administrator goes down and takes your savings with them.

Perhaps the player with the biggest, and maybe best, reputation in the 401k market is Fidelity. Most of my 401k accounts over the years have been there, so I've got over 2 decades experience with them. Vanguard is also popular with a reputation for low expenses. On the other extreme, some employers, especially smaller ones wanting to do something for employees (and themselves) but being susceptible to the charms of insurance salesmen, hire an insurance company to administer their 401k plans and what you end up getting is expensive variable annuities.

I found this article dealing with the issue of 401k safety:

http://www.jsonline.com/business/130485878.html

And here are a couple of articles on what to look for, both good and bad, in a 401k:

http://genxfinance.com/how-to-tell-if-you-have-a-bad-401k-pl...
http://www.dailyfinance.com/2015/01/30/determine-if-401k-bad...
http://money.usnews.com/money/retirement/articles/2011/07/11...

If you think your employer is taking the cheap road with their 401k plan or offloading too much of the cost onto employees, consider sitting down with the HR benefits administrator and pointing out the problems and discussing the reasons why they made the choices they did. It's possible they are new at the game and just didn't know any better.

Fuskie
Who thinks the biggest risk for employees investing in their 401k is not the security or reliability of their employer or plan administrator, but
being actively involved in their investment selections...

-----
Ticker Guide for The Walt Disney Company (DIS), Orbital ATK (OA)
Disclosure: May own shares of some, many or all of the companies mentioned in this post
Print the post Back To Top
No. of Recommendations: 2
I think you are overstating the risks involved in a qualified retirement plan. Keep in mind that assets in a plan are EITHER in a trust (protected from employer, employee and service provider creditors) or are in FULLY INSURED products - which while part of the general account of the insurance company and an asset on the balance sheet of the insurer, they are HIGHLY regulated by state regulators and the DOL (as those insurance companies become "fiduciaries" of the plan by virtue of the assets under their control).

YES, you should be cognizant of the fees you pay as a participant in the plan BUT keep in mind all but the smallest of plans usually get institutional pricing on the investments held within the plan (I defy you to get "Admiral" share pricing Vanguard funds - as many plans do). Also, you need to compare what the cost of investing in the plan is versus the cost of investing outside of the plan (which may entail RETAIL pricing).

YES, there are SOME employers that fail in fulfilling their fiduciary obligations and have selected inappropriate funds or share classes (with expense ratios higher than they should, or could be) BUT those are small in number, and can easily be rectified once pointed out to the employer (just point them to the "Tibble" case currently pending before the SCOTUS).

NO, there are no "reputable" service providers who "abscond" with funds - or they wouldn't be in business for very long - AND EVEN IF THEY DO, as the assets are held in trust - it's almost impossible to do so, without a "breach of fiduciary duty" - which the DOL will work tirelessly to resolve (go to www.dol.gov/ebsa and there is a link to file a complaint, an "800" number to do so as well, and lots of tips about retirement plans). There ARE some people who have "stolen" retirement plan money - but they tend to be small employers or crooked advisors (Matt Hutchinson - google it) - and a VERY SMALL MINORITY. The DOL DOES put people in jail for doing so (stealing employee benefit money is a FEDERAL FELONY - in addition to a breach of fiduciary duties) - and the threat of jail does wonders to deter such "borrowing" from a plan (and Hutchinson is in fact in jail as we speak - but he is an anomaly in almost any way you can think of).

Mistakes DO happen, and usually are readily corrected (and I make my living assisting plan sponsors keeping on the straight and narrow - and fixing issues that do come up). Rule number one when "human error" occurs is to MAKE THE PARTICIPANTS WHOLE - as if no mistake ever happened. There are rules, guidelines, regulations and even IRS and DOL programs to rectify problems that occur (EPCRS/VCP and VFCP).

Most people read way too much popular press about teh horror stories that affect 401(k) plans, but they are truly few and far between, AND there are amble safeguards in place to resolve issues that MAY arise.
Print the post Back To Top
No. of Recommendations: 1
With all the discussion concerning 401(k) taxes, loans, and fiduciary responsibilities of employers, perhaps the most important consideration when investing in a 401(k) is your due diligence efforts to assure the investment is secure and you won't lose your money later to corruption or self dealing by, for example, the service provider. In fact, the institutional investor is at the top of the list where money laundering of investor's money is concerned.

Really? While I will agree that in the past, there was not nearly as much regulation about fee disclosure, and there were some employers and administrators who took advantage of that fact, I would say that it would be much harder to hide self-dealing and corruption with the disclosures that have to occur now. That doesn't mean that all employees will now get a good deal in their 401(k) - it just means that employees should now be able to get enough information to make an informed decision on how much they should be investing, if anything, in their employer's plan.

Your employer can be held accountable as a fiduciary under ERISA for suitability factors such as fees, and as an employee you can enforce fiduciary breaches through litigation, but not many employees want to sue their boss.

Oh, I don't know about your assertion that employees don't sue their boss. First of all - it's not always the employer that one would sue - sometimes it's the administrator, and sometimes it would be both. And a quick google search of 'suing your employer over your 401(k)' came up with 1.17 million results. In addition to the Tibble vs. Edison case before SCOTUS that mjolah referenced, there have been lawsuits over 401(k)s against Lockheed-Martin, Wal-Mart, ABB, and Caterpillar, among others. Here's a link to a PDF that has information on nearly 40 suits over fees alone: http://www.groom.com/media/publication/1481_401k_fee_cases_d... And here's a website that tracks 401(k) and other retirement plan cases: http://www.401khelpcenter.com/401k_court_legal.html#.VT6B_Yf...

This thread will focus on methods you use as a 401(k) investor to investigate the service provider you are giving your money to... for example, when you invest in an annuity through an insurance company, state regulations usually require that the service provider owns the plan assets, and you become a class two investor. If something goes wrong, you will get your money back only after all expenses get paid, including the service provider's fees... comments anyone?

I think, that especially for employees of small companies, the larger issue is probably that of the employer withholding money from the paycheck, but not sending the money to the administrator in a timely manner, if it's sent at all. http://www.marketwatch.com/story/some-employers-steal-from-4... The most important thing that employees can do to check on that is to check their account statements (or better yet, check on line, if that capability is available) to be sure that contributions are being made in a timely manner, and to contact the DOL if they have concerns. http://www.dol.gov/ebsa/faqs/faq_compliance_pension.html

AJ
Print the post Back To Top
No. of Recommendations: 0
mjolah,

You wrote, YES, you should be cognizant of the fees you pay as a participant in the plan BUT keep in mind all but the smallest of plans usually get institutional pricing on the investments held within the plan (I defy you to get "Admiral" share pricing Vanguard funds - as many plans do). Also, you need to compare what the cost of investing in the plan is versus the cost of investing outside of the plan (which may entail RETAIL pricing).

Actually Vanguard has repeatedly pushed down the requirements for Admiral pricing. The minimum for index and taxed managed accounts is now only $10,000. ( https://investor.vanguard.com/mutual-funds/admiral-shares )

While it may not be practical to get Admiral shares for all of your Vanguard holdings, most people with modest investments can probably get Admiral shares for one or more core holdings, such as Vanguard's S&P 500 index fund.

Unfortunately converting to Admiral shares in a taxable account is probably a taxable event...

- Joel
Print the post Back To Top
No. of Recommendations: 1
Unfortunately converting to Admiral shares in a taxable account is probably a taxable event...

No, it's not considered a taxable event, as long as you still own the same dollar amount the same fund. You are just being provided a different fee structure for the same account. From the Vanguard website on converting to Admiral shares https://personal.vanguard.com/us/insights/article/admiral-qu...

•Changes from Investor Shares to Admiral Shares of the same fund are tax-free.

AJ
Print the post Back To Top
No. of Recommendations: 0
Really? While I will agree that in the past, there was not nearly as much regulation about fee disclosure, and there were some employers and administrators who took advantage of that fact, I would say that it would be much harder to hide self-dealing and corruption with the disclosures that have to occur now. That doesn't mean that all employees will now get a good deal in their 401(k) - it just means that employees should now be able to get enough information to make an informed decision on how much they should be investing, if anything, in their employer's plan.

I think the key element is disclosure. Most 401(k) investors never read the disclosures in their documents or never have the opportunity to review them. In 2008, when my service provider "froze" my contributions to "protect the investors," I asked my employer for a copy of the group annuity contract supposedly provided by the service provider (an insurance company). The administrator claimed it wasn't part of the plan, and I had no access to it. Yet the annuity and it's addendum's contained the disclosure information. Often disclosures can be deceiving and hard to understand by the investor. My service provider stated in a letter to this writer that they had "redefined" the definition of retirement to include "separation of service" when my plan clearly stated I could withdraw my retirement funds and continue working. I was 66 years of age at the time the funds were frozen, and 14 months later the account had lost almost 50% of it's value.
Print the post Back To Top
No. of Recommendations: 0
I think you are overstating the risks involved in a qualified retirement plan. Keep in mind that assets in a plan are EITHER in a trust (protected from employer, employee and service provider creditors) or are in FULLY INSURED products - which while part of the general account of the insurance company and an asset on the balance sheet of the insurer, they are HIGHLY regulated by state regulators and the DOL (as those insurance companies become "fiduciaries" of the plan by virtue of the assets under their control).

You make a good argument for state regulators, and it's true some states do highly regulate their domiciled insurance companies, but other states will under regulate, like Iowa for example. If you read the Iowa State Code 508(a) that regulates their insurance companies, like Principal Life Insurance Company, domiciled in Iowa and a major contributor of 401(k) products, you may get a sense that most group and variable annuity based products are grossly under regulated.
Print the post Back To Top
No. of Recommendations: 1
think the key element is disclosure. Most 401(k) investors never read the disclosures in their documents or never have the opportunity to review them. In 2008, when my service provider "froze" my contributions to "protect the investors," I asked my employer for a copy of the group annuity contract supposedly provided by the service provider (an insurance company). The administrator claimed it wasn't part of the plan, and I had no access to it. Yet the annuity and it's addendum's contained the disclosure information. Often disclosures can be deceiving and hard to understand by the investor. My service provider stated in a letter to this writer that they had "redefined" the definition of retirement to include "separation of service" when my plan clearly stated I could withdraw my retirement funds and continue working.

I would ask why you selected an annuity as an investment within a 401(k) plan in the first place. Annuities within a 401(k) end up with participants paying extra for tax benefits within the annuity that are already available in the 401(k).

And if you were going to select the annuity, why didn't you get the disclosures on it before you selected it? Even before 2008, there was enough bad press about variable annuities being costly and not delivering what was promised that I certainly would have looked into the details before choosing an annuity as an 'investment'.

I was 66 years of age at the time the funds were frozen, and 14 months later the account had lost almost 50% of it's value.

And did you withdraw at that point, which was pretty much the bottom of the market? From 2008 to late 2009 there were a lot of things that lost a significant part of their value, including my 401(k) investments. If one held on and didn't sell, most of those things recovered, unless you owned debt instruments that were obligations of one of the companies that declared BK - at least that's what happened to my 401(k). And if you bought more at the bottom of the market, instead of selling, your recovery could have been much faster.

I guess I don't see any evidence to support your hypothesis that 401(k) administrators are at the "top of the list for laundering investor's money". I see that you had a bad experience, but I don't see any evidence of how your experience applies to 'most investors' or how your experience applies to all 401(k) administrators. Personally, among the 8 or 9 401(k) plans I have had, I don't recall there being any annuities even offered as an option. Now, it could be that I just ignored any annuities that were offered because I saw less costly alternatives, so I don't know for sure that I wasn't offered one. But it certainly would not have been at the top of my list.

So, since you had such a bad experience, have you sued your employer and/or their 401(k) administrator? If not, why not?

AJ
Print the post Back To Top
No. of Recommendations: 0
I would ask why you selected an annuity as an investment within a 401(k) plan in the first place.

Most like the poster had no alternative. If the employer used an annuity company as their 401k provider then the employee has no other option.
Print the post Back To Top
No. of Recommendations: 0
"If you read the Iowa State Code 508(a) that regulates their insurance companies, like Principal Life Insurance Company, domiciled in Iowa and a major contributor of 401(k) products, you may get a sense that most group and variable annuity based products are grossly under regulated."

Maybe in Iowa - but in order to SELL an insured product in another state, the insurance company is regulated by the STATE IN WHICH THE PRODUCT IS SOLD. So, Iowa's lax regulation is totally irrelevant to a purchaser in Ohio - where I live - as Principal is regulated by teh Ohio Commissioner of Insurance for ALL products sold in this state.

And by the way, you provide a VERY GOOD ARGUMENT against the ability to sell insurance ACROSS state lines - as the insurance companies will simply relocate to the state with the most lax regulations and sell their products nationally....
Print the post Back To Top
No. of Recommendations: 1
Most like the poster had no alternative. If the employer used an annuity company as their 401k provider then the employee has no other option.

Which is why I asked. Because then my next questions would be

- Did you complain to your employer about only having annuities as the only 'investment' options?
- Did you examine the surrender and insurance fees to find out what it was going to cost you to roll everything to an IRA when you exited the plan?
- Did you look at if you would have been better off just investing your money in a taxable account instead of an annuity only 401(k)?

Because those would have been my actions.

AJ
Print the post Back To Top
No. of Recommendations: 0
“Most like the poster had no alternative. If the employer used an annuity company as their 401k provider then the employee has no other option.

Which is why I asked. Because then my next questions would be

- Did you complain to your employer about only having annuities as the only 'investment' options?
- Did you examine the surrender and insurance fees to find out what it was going to cost you to roll everything to an IRA when you exited the plan?
- Did you look at if you would have been better off just investing your money in a taxable account instead of an annuity only 401(k)?

Because those would have been my actions.”

AJ,
Hawkwin is right…. Fifteen years ago my wife and I were informed by our employer along with their other 5000 employees that Principal Life Insurance Company would provide investment options so we could contribute to their 401(k) Plan…. We were thrilled, and both my wife and I contributed the maximum amount for fifteen years.
We didn’t know what an annuity was even if had it been mentioned, and we assumed there were no fees. Since the employer was also contributing generously to the plan, we had no interest in considering other options.
Since the plan was with a reputable insurance company (we believed their commercials) and we trusted our employer, why would we be concerned with the issues you present? What is a fiduciary or trust? Didn’t have a clue… self-dealing and conflict of interest? Who cares, we were too busy working and were happy to be saving for our retirement.
In other words, we were totally ignorant about investing, as are 99.8% of 401(k) investors today. I appreciate your comments because everything you said reflects the truth about the title of my post… due diligence.
If you were teaching millions of 401(k) investors about due diligence, what would you say, because my goal is to convince guys like yourself to teach guys like me about due diligence. There is plenty of “investment advisors” ready to take my money… I want someone to teach me how to keep my money once I have invested.

PS How do you get the italics?? This is my first post...
Print the post Back To Top
No. of Recommendations: 0
dmyhre943,

You wrote, Hawkwin is right…. Fifteen years ago my wife and I were informed by our employer along with their other 5000 employees that Principal Life Insurance Company would provide investment options so we could contribute to their 401(k) Plan…. We were thrilled, and both my wife and I contributed the maximum amount for fifteen years.
We didn’t know what an annuity was even if had it been mentioned, and we assumed there were no fees. Since the employer was also contributing generously to the plan, we had no interest in considering other options.


I know its kind of late to belabor the point ... but you really need to read contracts ... and you need to do due diligence before making an investment. Or in this case, even shortly after you make an investment election would have been better than not at all. It's kind of a shame this stuff isn't drilled into our youth before they get into the job market.

Also, If you were teaching millions of 401(k) investors about due diligence, what would you say, because my goal is to convince guys like yourself to teach guys like me about due diligence. There is plenty of “investment advisors” ready to take my money… I want someone to teach me how to keep my money once I have invested.

Google is your friend. Also, visit the boards on The Motley Fool. Knowledgeable people with good advice have been here giving out that advice free of charge for nearly 2 decades.

Finally, PS How do you get the italics??

You get fancy formatting by using these HTML markers:

<i>Italics</i>
<b>Bold</b>
<b>Bold <i>Italics</i></b>
<tt>True Type</tt>
<pre>
Table ->
Header 1 Header 2
A 1.0
B 2.0
Etc 3.0
</pre>

https://onesupport.fool.com/hc/en-us/articles/201142724-How-...

- Joel
Print the post Back To Top
No. of Recommendations: 0
Thanks Joel... the due diligence I am referring to relates more to the ethics displayed by a company rather than the investment type. The 2008-2009 crisis would have been avoided had the institutional investors demonstrated more integrity in investing the plan participant's contributions, and focused more on their fiduciary responsibilities rather than self dealing interests.

The close of 2008 through 2010 found fixed income investors with at least one service provider having their contributions frozen, then the remaining account liquidity was used to pay off guaranteed loans through loan purchase agreements where commercial real estate developers were the borrowers. Those borrowers had defaulted or over-leveraged properties that had lost much of their value during that time. How can a Plan Sponsor or Administrator foresee these events even though there may have been some limited disclosure made by the service provider through the annual reports and annuity that no-one bothered to read?

Those companies that choose to compromise their fiduciary responsibilities through lax enforcement by state regulators need to be identified and quarantined from the investor. The DOL is trying to identify violators under their rules of disclosure, but when identified, no plea is demanded but in it's place the Justice Department or SEC has them sign a Deferred Prosecution Agreement.

Finally, the SEC has no enforcement powers regarding insurance companies since they are state regulated, and prior to 2008 did not offer publicly traded investments to investors. Recent District Court Decisions have even ruled that service providers are not fiduciaries!

Thanks also for the HTML advice....

Dennis
Print the post Back To Top
No. of Recommendations: 0
Mjolah,

Maybe in Iowa - but in order to SELL an insured product in another state, the insurance company is regulated by the STATE IN WHICH THE PRODUCT IS SOLD. So, Iowa's lax regulation is totally irrelevant to a purchaser in Ohio - where I live - as Principal is regulated by teh Ohio Commissioner of Insurance for ALL products sold in this state.

Actually, your statement is not true... Ohio can regulate the sale<i/> of a foreign insurance companies products, but they certainly do not regulate the company itself. Ohio State Code 3911.011 (C) states (C) The superintendent shall have the sole and exclusive power and authority to regulate the sale, delivery, and issuance for delivery in this state of policies, annuities, and other contracts.... Nothing here mentions regulating the insurance company itself, which it cannot do since the company is a foreign insurance company.

And by the way, you provide a VERY GOOD ARGUMENT against the ability to sell insurance ACROSS state lines - as the insurance companies will simply relocate to the state with the most lax regulations and sell their products nationally....

I don't understand your comment.... state regulation isn't the answer, but neither is federal regulation. I think they should eliminate the regulators and annuities and make the sale of insurance 401(k) products an open market consumer driven product. The more you steal, the less business you will earn.
Print the post Back To Top
No. of Recommendations: 0
Mojolah,

Sorry I messed up the HTML, but I think you get the message.

Dennis
Print the post Back To Top
No. of Recommendations: 0
Fuskie,

I've not heard of a lot of cases where an employer absconds with 401k contributions - usually once the money goes from your paycheck to the plan administrator, it's out of the employer's hands. Now the employer may negotiate an agreement for a 401k plan that reduces employer costs but leaves employees with lots of fees. However, I've not heard a lot of cases where a plan administrator goes down and takes your savings with them.

Actually, I agree..... it is the service provider a/k/a institutional investor that usually steals the money. And I appreciate the links...

Who thinks the biggest risk for employees investing in their 401k is not the security or reliability of their employer or plan administrator, but being actively involved in their investment selections...

Defined contribution plans are about investors being actively involved in their investment decisions. Apparently you think that is the biggest risk, and you could be right if they are not educated to make the right decision. In this scenario, defined benefit plans aka pension plans are the best option.
Print the post Back To Top
No. of Recommendations: 1
Hawkwin is right…. Fifteen years ago my wife and I were informed by our employer along with their other 5000 employees that Principal Life Insurance Company would provide investment options so we could contribute to their 401(k) Plan…. We were thrilled, and both my wife and I contributed the maximum amount for fifteen years.
We didn’t know what an annuity was even if had it been mentioned, and we assumed there were no fees. Since the employer was also contributing generously to the plan, we had no interest in considering other options.


Unfortunately, 15 years ago, there was not as much information required to be provided as there is now, as far as fees, investment choices, etc. However, even back then, there was generally some information available on fees in 401(k) plans. For instance, this "STUDY OF 401(K) PLAN FEES AND EXPENSES" was published on 4/13/98 by the DOL https://www.google.com/url?sa=t&rct=j&q=&esrc=s&...

It has this to say about annuities within a 401(k) plan (with some bolding by me):

2.5.1. INSURANCE PRODUCTS

When the provider of 401(k) investment products is an insurance company, the plan's assets are often packaged in a characteristic insurance product, the variable annuity. Such a plan's asset holdings would contain a set of investment instruments similar to those in plans serviced by other providers. However, when wrapped into an annuity, usually by an insurance company provider, such an account then becomes an insurance product and is exempt from the Securities Act of 1933. The group annuity wrapper qualifies the plan as an insurance product. This provides certain tax preferences and excludes it from the accounting and disclosure provisions that apply to regulated securities. (The tax preferences do not provide any advantages to 401(k) plans since such plans already receive tax preferences.) An advantage to the provider in this arrangement is that the fees are not subject to the SEC rules that apply to other 401(k) products (Hack).

2.5.1.1. Group Variable Annuity.

The group variable annuity is simply a wrapper placed around a bundle of other investment vehicles such as mutual funds and general account investment options. The wrapper consists of a set of guarantees that include:

· A minimum death benefit expressed in terms of the member's and firm's contributions,
· A post-retirement rate of return, if the participant elects a pay-out in the form of an annuity, and
· A guaranteed level of expense to be assessed against the assets of the account.

In a group annuity, each participant has an individual account, but the guaranteed annuities apply to every participant identically. The group annuity arrangement requires daily recordkeeping of accounts at the participant level.

Administrative fees and expenses are assessed on two levels within the group annuity (plus itemized expenses that may be charged directly to the plan). There are investment management fees assessed against the individual mutual funds and general account investments within the annuity wrap. In addition, there is a wrap fee assessed against the total assets in the annuity.

2.5.1.2. Individual Variable Annuity.

This product is similar to the group annuity except that the individual accounts are separately designed and packaged for each participant. This adds to the administrative cost of recordkeeping and administration. The individual annuity is usually used for very simple, small (less than 25 participants) plans (Hack). A typical use would be in a company with highly compensated, professional employees such as a law or accountancy firm.

The administrative fee and expenses structure for individual annuity plans is similar to those for group plans, but the wrap fees are substantially higher. One estimate suggests that the mortality and expense fee (see Section III for a definition) plus distribution charges would total 100 to 300 basis points for individual annuities (Hack).


My guess is that you will say "But what typical worker was reading DOL studies?" and I would agree with that. However, the fact that the study was published means that there was information available, and there were likely articles in the mainstream press that were also being published about 401(k) costs. I remember reading articles in Money and BusinessWeek about 401(k) plans and being advised in those articles to look at the low cost options in my 401(k).

Since the plan was with a reputable insurance company (we believed their commercials) and we trusted our employer, why would we be concerned with the issues you present? What is a fiduciary or trust? Didn’t have a clue… self-dealing and conflict of interest? Who cares, we were too busy working and were happy to be saving for our retirement.
In other words, we were totally ignorant about investing, as are 99.8% of 401(k) investors today. I appreciate your comments because everything you said reflects the truth about the title of my post… due diligence.


I guess I would say that one should always manage one's money with the old Reagan expression "Trust, but verify" in mind. After all, it's your money, so you are the one who should be most interested in keeping it. And given that Reagan's tenure as President began more than 30 years ago, that sentiment would have been around even when you started contributing. It's unfortunate that you weren't a little more cynical.

If you were teaching millions of 401(k) investors about due diligence, what would you say, because my goal is to convince guys like yourself to teach guys like me about due diligence. There is plenty of “investment advisors” ready to take my money… I want someone to teach me how to keep my money once I have invested.

Guys like me? First of all, I'm a gal. ;-) And then - I'm probably a lot more like you and your wife than you might expect. As an 'investment advisor', I look my only client in the mirror every morning. My parents never talked to me about investing - I am self-taught. I actually have my first boss to thank for convincing me to put money into a 401(k) - he sold it to the young engineers who worked for him as a way to get a 6% raise, since the company that we worked for gave a 75% match on the first 8% of salary that was contributed. (I am very grateful to him.) At that first job, I always put in 8%, but never more. As I started to see my balances grow, I became more interested in how to make them grow more, so I started reading. Without the internet (this was back when the IBM P/S 2 was a big deal, and the work computer that I shared with my office mate had 2 5 1/4" disk drives with no hard drive - think Lotus 1-2-3), I was stuck with reading publications like the Wall St Journal, BusinessWeek and Money - on paper.

Now, there are a lot more resources. I would suggest that www.BrightScope.com is a great tool, especially if your company happens to be one of the companies that is rated. Even if it's not, you can still get information about other 401(k) plans in your industry or geographical area and compare the particulars of your plan to those plans. Things like the Summary Plan Description, the Summary Annual Report, prospectuses and information about investment choices are required to be provided to you - use them. Ask questions if you don't understand something. As Joel said, google is your friend, as well as forums like this.

AJ
Print the post Back To Top
No. of Recommendations: 0
"Actually, your statement is not true... Ohio can regulate the sale<i/> of a foreign insurance companies products, but they certainly do not regulate the company itself. Ohio State Code 3911.011 (C) states (C) The superintendent shall have the sole and exclusive power and authority to regulate the sale, delivery, and issuance for delivery in this state of policies, annuities, and other contracts.... Nothing here mentions regulating the insurance company itself, which it cannot do since the company is a foreign insurance company."

Completely FALSE. By regulating the product, one regulates the company. Ohio can and DOES mandate that issuing companies maintain certain asset levels, reserves, and engage in only approved business activities. ANYTHING a "foreign" insurance company does that impairs the products sold in Ohio is fair game for regulation.

The extreme example of this is NY - which has very STRICT regulations on insured products so that most insurance companies DON'T sell their products there as a "foreign" insurance company - opting instead to create a NY based subsidiary insurance company that sells in NY - so the regulations only affect that NY (DOMESTIC) insurance carrier and not their nationwide book of business.
Print the post Back To Top
No. of Recommendations: 0
"...state regulation isn't the answer, but neither is federal regulation. I think they should eliminate the regulators and annuities and make the sale of insurance 401(k) products an open market consumer driven product. The more you steal, the less business you will earn."


That is a completely unsubstantiated assertion - and one that leads to financial ruin for those who are victims of unscrupulous and UNREGULATED providers PRIOR to it going out of business for untoward business practices.

I find such a position repugnant.

My point was clearly that "deregulating" the insurance industry such that they may sell "cross-border" without being subjected to the State of sale regulations (a very prominent talking point for those on the right) will end up in insurance companies becoming domiciled is the state of least regulation (which is why most credit card issuers having relocated (at least as far as a mail-drop "home office" to SD). That would be RUINOUS for those who got scammed,and completely destructive to the industry - which is dependent on the perception of stability - with safety nets in the event of failures.
Print the post Back To Top
No. of Recommendations: 0
Mjolah,

ANYTHING a "foreign" insurance company does that impairs the products sold in Ohio is fair game for regulation.

If what you say is true, Ohio will love to see the info I have on a large mid-western insurance company.... and I will send it to them for a response.

Dennis
Print the post Back To Top
No. of Recommendations: 0
That is a completely unsubstantiated assertion - and one that leads to financial ruin for those who are victims of unscrupulous and UNREGULATED providers PRIOR to it going out of business for untoward business practices.

Mjolah, the 2008-2009 collapse did lead to financial ruin for millions of 401(k) investors, and I guarantee it was the result of unscrupulous service providers that were regulated. And the providers didn't even have to go out of business! My point is that the system is broken, and we don't fix it by creating, as you say, a perception of stability. And I think we have to agree there were no safety nets in 2008-2009.

We need a new plan for the 401(k) marketplace to work. AJ is on track for what the 401(k)investor needs to succeed(sorry about the guy thing). The industry simply needs to help the investor, not create a perception of security.

Dennis
Print the post Back To Top
No. of Recommendations: 0
Thanks, AJ....

My wife's name is Audrey Joy, so I know all about the AJ gal thing. How could I have missed it...

Your comments are on track. Actually, I am a due diligence investigator, and I depend on Brightscope almost daily, as well as Google. My goal is for the average investor to have the same initiative you have to follow a due diligence course of research rather than depending on the system to protect your rights.

And I really appreciate your interest in this thread...

Dennis
Print the post Back To Top
No. of Recommendations: 0
Mjolah,

My point was clearly that "deregulating" the insurance industry such that they may sell "cross-border" without being subjected to the State of sale regulations (a very prominent talking point for those on the right) will end up in insurance companies becoming domiciled is the state of least regulation (which is why most credit card issuers having relocated (at least as far as a mail-drop "home office" to SD). That would be RUINOUS for those who got scammed,and completely destructive to the industry.

We both have the same goals, with different views on how to achieve them... I believe that companies that are subjected to market based pressures perform best in the marketplace. In our current system, the providers steal from the public and pay off the regulators to blink during their crime sprees.

It is easy for insurance companies to influence state regulators. Iowa is a classic example... in 2006 the retiring Insurance Commissioner immediately accepted a position on the Board of Directors with Principal Financial Group as a member of the Audit Committee. This was weeks after she was hired as Professor Emeritus at Drake University... Zimpleman's Alma Mater, and while he was a trustee of the college. And her brother had already been working for Principal for fifteen years in what job position? Database Administrator.

The Iowa governor also routinely travels worldwide with Principal's CEO, Larry Zimpleman. Do you really believe a state regulator can regulate a company that hires over 10,000 employees in the state? Des Moines has the highest per capita salary of any other city in the nation. Like it or not, we are on the same page.

Dennis
Print the post Back To Top
No. of Recommendations: 0
"Mjolah, the 2008-2009 collapse did lead to financial ruin for millions of 401(k) investors, and I guarantee it was the result of unscrupulous service providers that were regulated. And the providers didn't even have to go out of business! My point is that the system is broken, and we don't fix it by creating, as you say, a perception of stability. And I think we have to agree there were no safety nets in 2008-2009."

The Great Recession was cause by large BANKS engaging in UNREGULATED businesses that put at risk their regulated businesses that were supported by various taxpayer supported insurance programs (FDIC, etc.). The Great Recession was NOT the fault of the regulated side of the house, nor the actions of independent mutual fund companies and insurance companies in the 401k space (Fidelity, T. Rowe Price, Vanguard, Principal, Prudential and others). In fact, there were "safety nets" in place, but the UNREGULATED BUSINESS losses were so substantial as to jeopardize the regulated side, requiring TARP (another "ad hoc" safety net). Financial ruin to those invested? I disagree. I've lived through the Great Recession of 2008-2009, the recession /tech bubble of 2003, the interest rate crunch in the early/mid 80's, and even the recession and oil embargo of the 70's. The markets recovered if you didn't panic (and maintained the "perception of stability.") Those that panic and got out of the market - well, timing is everything, and market timing is nothing.

You advocate basically for a "trial and error" marketplace for 401k services where the crooks go out of business AFTER ONE HAS ENTRUSTED THEIR MONEY TO THEM AND LOST. Nonsense. No one would ever engage in such a system - hence my comment that a perception of stability is necessary.

The 401(k) industry HAS helped investors. There are tax deferrals (and tax free earnings in Roth products). There are fiduciary constraints (and my clients take those VERY seriously). There are advice products (and second and third generation products are very reasonably priced - as low as a flat $8 per participant per year - as opposed to basis point charges). There is now fee disclosure (and fee compression) resulting in more and more institutionally priced investment options.

Are there bad apples and problems? Sure. But they are being rooted out and rectified.

The REAL problems only now being addressed is that for 30 years we thought we could turn "employees" into "professional level investment managers." It doesn't work. Different people have different levels of education/skills/aptitude (and those here on the Fool are not "typical") - and so we now offer different investment options (target date funds), auto-options, QDIAs, advice (and now robo-advisors) and a lot more to assist them.

Truth be told, we need to go BACK to a system of pensions - but that's a political battle and a PERCEPTION one as well (gee, wonder why they call them "old fashioned" pensions? - It's to condition people to not like them). They were great from the perspective of the employee. If managed appropriately by the employer, they weren't that burdensome (administratively or financially).

So if you want to discuss the industry - I'm all up for that - as a 30 year plus veteran of the business (having worked for some of the "biggies" in the biz) and an ERISA attorney, I'm willing to have that debate. But better come prepared with FACTS - because most people argue that the industry is "bad" simply because the markets moved against them.
Print the post Back To Top
No. of Recommendations: 1
Truth be told, we need to go BACK to a system of pensions - but that's a political battle and a PERCEPTION one as well (gee, wonder why they call them "old fashioned" pensions? - It's to condition people to not like them). They were great from the perspective of the employee. If managed appropriately by the employer, they weren't that burdensome (administratively or financially).

I'd rather not. Pensions are a strong incentive for employees not to leave their job for other opportunities.

PSU
Print the post Back To Top
No. of Recommendations: 0
And that's a problem because...?
Print the post Back To Top
No. of Recommendations: 1
And that's a problem because...?

Pensions are not portable. 401k's are.

PSU
Print the post Back To Top
No. of Recommendations: 0
I believe you are misinformed - and you parrot a talking point of those who seek to eliminate pensions in favor of 401(k) plans only. First, the "pension" benefit, once accrued is ALWAYS a benefit to be paid to the participant at the appropriate time. In other words, it is TOTALLY irrelevant that it isn't "portable." It's a FIXED benefit at the time of termination of employment, and even though it is not payable until some tie in the future, it doesn't "go away." See Internal Revenue Code Section 411(d)(6) and the regulations. So, why is "portability" relevant. I think it's not.

Additionally, some are "portable" if they allow for a lump sum distribution at time of termination. you take an actuarially determined hit (based on years to normal retirement age and current interest rates), but it is possible. I generally DON'T recommend it (or recommend the option to my clients, for a variety of reasons.

So, who cares that it's not "portable"? Once vested (and the rules on that vary based on plan design - but don't exceed various minimums)it's a benefit you will ALWAYS have - regardless of where you go.

I worked at KeyCorp - leaving in 1999 and STILL have a vested benefit under their pension plan - which will provide me a benefit when I turn age 65 - NO QUESTIONS ASKED - for the rest of my life.

The ONLY issue is one of keeping track of it, and knowing when you can get it. Not a problem, really....
Print the post Back To Top
No. of Recommendations: 0
The ONLY issue is one of keeping track of it, and knowing when you can get it. Not a problem, really....

I believe the general problem with pensions is that the vesting can take a year or more. 401k's vest immediately. You can work there for 1 year and take your entire 401k with you (minus of course any funds the company may have contributed).

--
whyohwhyoh
Print the post Back To Top
No. of Recommendations: 1
I believe you are misinformed - and you parrot a talking point of those who seek to eliminate pensions in favor of 401(k) plans only. First, the "pension" benefit, once accrued is ALWAYS a benefit to be paid to the participant at the appropriate time. In other words, it is TOTALLY irrelevant that it isn't "portable." It's a FIXED benefit at the time of termination of employment, and even though it is not payable until some tie in the future, it doesn't "go away." See Internal Revenue Code Section 411(d)(6) and the regulations. So, why is "portability" relevant. I think it's not.

It may be irrelevant to you. Don't speak for me. I'd prefer not to let it sit there until age 65.

Additionally, some are "portable" if they allow for a lump sum distribution at time of termination. you take an actuarially determined hit (based on years to normal retirement age and current interest rates), but it is possible. I generally DON'T recommend it (or recommend the option to my clients, for a variety of reasons.

See, it's not really portable unless you are willing to take a haircut.

So, who cares that it's not "portable"?

I do. Question answered.

Once vested (and the rules on that vary based on plan design - but don't exceed various minimums)it's a benefit you will ALWAYS have - regardless of where you go.

Sure but it isn't in the form of that I want. I prefer control over what essentially is an asset I earned. Also as already suggested, there may be a vesting period for the pension. Any benefit may be based on years of service and average salary of "x" number of years. If you leave at a younger age with few years in the pension plan, the benefits you receive at age 65 may be small due to the few years and the salary number used in the benefit formula having been eroded over the years from inflation.

I worked at KeyCorp - leaving in 1999 and STILL have a vested benefit under their pension plan - which will provide me a benefit when I turn age 65 - NO QUESTIONS ASKED - for the rest of my life.

Yes, you have to wait until age 65. I may not want to wait that long. One has access to a 401k at age 59.5. You'll need to take a reduced benefit from the pension to get it at that age.

BTW, I do have a pension and my wife had one from a previous employer.

PSU
Print the post Back To Top
No. of Recommendations: 0
Lot's of great points....

Yes, you have to wait until age 65. I may not want to wait that long. One has access to a 401k at age 59.5.


Even better, with a 401k one can actually access the funds penalty free before 59.5 with a 5 year Roth conversion ladder, or w/ SEPs.

65 is way to long to wait.

--
whyohwhyoh
Print the post Back To Top
No. of Recommendations: 1
Even better, with a 401k one can actually access the funds penalty free before 59.5 with a 5 year Roth conversion ladder, or w/ SEPs.

Or just by leaving the employer who administers the 401(k) in or after the calendar year you turn 55.

AJ
Print the post Back To Top
No. of Recommendations: 0
"I believe the general problem with pensions is that the vesting can take a year or more. 401k's vest immediately."

Not at all true. The amount deferred into a 401(k) plan by the employee/participant is ALWAYS 100% vested. The amount of any employer contributions (match, profit sharing, or whatever they call it) can be subject to a vesting schedule of up to 6 years in length.
Print the post Back To Top
No. of Recommendations: 0
"It may be irrelevant to you. Don't speak for me. I'd prefer not to let it sit there until age 65."

You completely FAIL to understand the purpose and structure of a pension plan. It IS NOT a balance you can tap into. It IS a promise to provide you an income stream at retirement. It IS NOT your money to do with as you please. It IS a promise to pay in the future.

You get it as part of the benefit package provided by your employer - and now you want to impose "ownership rights" not promised to you when you accepted the job.

It IS irrelevant - regardless of your "want." The system was structured to provide LIFETIME INCOME at a DEFERRED date. It does that. Nothing more, nothing less.

"See, it's not really portable unless you are willing to take a haircut."

It IS NOT a haircut. It IS the actuarial equivalent of what you would get at a future date. It DOES take into account the time value of money. Simple financial concept. Why would they give you the equivalent of $X dollars a month for your life expectancy unreduced if the promised benefit wasn't suppose to start for 20 years? I don't think you understand the concept of "actuarial equivalence."

"So, who cares that it's not "portable"?

"I do. Question answered."

It's irrelevant. It is a benefit that stays with you for LIFE - and the fact that you can't transfer that benefit is just a silly argument. Portability is a concept that doesn't even attach to a promise to pay an amount in the future. Would you claim the same thing if you were the beneficiary of an annuity that didn't pay you anything until 20 years from now? Would you complain that it was with MetLife and you wanted it to be with Nationwide? TOTALLY INAPPROPRIATE COMMENT - portability is IRRELEVANT.

"Sure but it isn't in the form of that I want. I prefer control over what essentially is an asset I earned. Also as already suggested, there may be a vesting period for the pension. Any benefit may be based on years of service and average salary of "x" number of years. If you leave at a younger age with few years in the pension plan, the benefits you receive at age 65 may be small due to the few years and the salary number used in the benefit formula having been eroded over the years from inflation."

Why is it relevant that YOU want control? It is an EMPLOYER PROVIDED BENEFIT - that costs you nothing, is part of you employment arrangement with the company, is designed as the EMPLOYER sees fit, and WILL pay you an income stream at some point in the future.

It IS what is PROMISED by the employer - and your "wants" are really irrelevant.

"Yes, you have to wait until age 65. I may not want to wait that long. One has access to a 401k at age 59.5. You'll need to take a reduced benefit from the pension to get it at that age."

You TOTALLY misunderstand the purpose of a pension. It is a PROMISE to pay at retirement. You WANT it to be something it isn't - and was never designed to be. Consider it a "base line" income, or a "safety net" income when you hit a certain age. Similar in concept to Social Security.

You just seem to WANT something it was never designed to provide and because it doesn't do what you WANT you discount it's value without ever considering what it actually DOES DO.

"BTW, I do have a pension and my wife had one from a previous employer."

Good. Portable or not, lump sum distributable or not, it IS a benefit you will have for hte REST OF YOUR LIFE. Not something you can say for certain about a balance in a 401(k) plan....
Print the post Back To Top
No. of Recommendations: 0
"Even better, with a 401k one can actually access the funds penalty free before 59.5 with a 5 year Roth conversion ladder, or w/ SEPs."

Not "completely" true. If you TERMINATE employment, and IF THE PLAN SO PERMITS, you can take a distribution from a 401(k) plan without the 10% excise tax for early withdrawal at or after age 59-1/2 (but you will still have ordinary income tax consequences by doing so). Of course, if you have a "distributable event" as defined in the Internal Revenue Code, you can rollover your balance to an IRA at any time you are eligible to do so, without any tax consequences (excise or income). If you REMAIN EMPLOYED, the plan MAY OR MAY NOT allow "in-service" distributions at or after age 59-1/2 - it's a plan design question within the control of the employer when they make design decisions.
Print the post Back To Top
No. of Recommendations: 0
Not at all true. The amount deferred into a 401(k) plan by the employee/participant is ALWAYS 100% vested. The amount of any employer contributions (match, profit sharing, or whatever they call it) can be subject to a vesting schedule of up to 6 years in length.

Exactly. For some reason??? you cut that portion out of my quote.

"minus of course any funds the company may have contributed"

--
whyohwhyoh
Print the post Back To Top
No. of Recommendations: 0
Exactly. For some reason??? you cut that portion out of my quote.

"minus of course any funds the company may have contributed"

The fact of the matter is, is that being "100% vested" in your OWN money is irrelevant. You'd be 100% vested in it had you never contributed it to the plan in the first place. The issue is one EXCLUSIVELY of the EMPLOYER provided benefit. Match, profit sharing, or CONTRIBUTIONS TO A PENSION that are relevant here.
Print the post Back To Top
No. of Recommendations: 0
If you TERMINATE employment,...

Yes, I'm referring to when one retires (i.e. quits) from their employer.

Then one has the complete rights to rollover into an IRA and access the funds penalty free with a 5 year Roth conversion ladder, or w/ SEPs.

And yes, you are correct, everyone must include distributions as ordinary income tax on any 401k withdraw or Roth conversion, as it goes in tax free. Can't get around this, except to minimize any taxes by staying in low or zero% tax brackets.

--
whyohwhyoh
Print the post Back To Top
No. of Recommendations: 0
being "100% vested" in your OWN money is irrelevant. You'd be 100% vested in it had you never contributed it to the plan

Not with tax free growth. That is the beauty of the 401k. The money that you put in is tax free, and grows tax free. And completely portable.

Similar to a traditional IRA, but much larger quantities can be invested each year. Also no income limits for the most part.

--
whyohwhyoh
Print the post Back To Top
No. of Recommendations: 0
"Then one has the complete rights to rollover into an IRA and access the funds penalty free with a 5 year Roth conversion ladder, or w/ SEPs."

Again, "mostly true" but not always. Keep in mind that a plan sponsor (employer) has the right to design the plan how they want, subject only to the rules contained in ERISA. NOTHING in ERISA requires a plan to allow for distributions upon termination of employment before attainment of the "Normal Retirement Age" - which can be defined as a reasonable age employees may expect to retire - but not greater than age 65.

Plans CAN, and DO, sometimes restrict the ability of terminated employees to receive immediate distributions of their account balances until some later date. It is becoming somewhat "rare" to have these provisions, but I still see them (and include them in plans for some of my clients) in cases where 1) the employer doesn't want "talent" leaving to set up a competitor using their retirement plan balance as seed money; 2) in certain "professional organizations" where they use the lack of a distributable event as "golden handcuffs" to those who may jump ship and take clients with them; 3) in cases where the plan may hold (illiquid) assets, including non-publicly traded company stock, real estate, limited partnership interests, and the like.

It is a common misconception that one has a "right to an immediate distribution upon termination of employment - and while that may be the "norm" it is completely based on "plan design" mostly within the control of the employer.
Print the post Back To Top
No. of Recommendations: 5
You completely FAIL to understand the purpose and structure of a pension plan. It IS NOT a balance you can tap into. It IS a promise to provide you an income stream at retirement. It IS NOT your money to do with as you please. It IS a promise to pay in the future.

Please don't tell me what I don't understand. You are being quite snarky on this thread when I have done nothing to you to make you this way. As I have already said, I know what pensions are.

You get it as part of the benefit package provided by your employer - and now you want to impose "ownership rights" not promised to you when you accepted the job.

Benefit packages are not free. They cost the employer money. I have not mentioned anywhere that I want to impose ownership rights that are not promised. That is a figment of your imagination. What I have said upthread is that I prefer 401ks and not pensions. Now you are spinning a simple statement in all directions to support your own opinions. If you like pensions, then just say it. Don't put words in my mouth of things I didn't say. To answer your statement on something I didn't say, I evaluate the benefits of any offers from employers. It may be that the employer offers a pension that I don't prefer but the other benefits and the job itself makes the job attractive. I don't see any rule where an employee has to love every single thing about their employers. Stating I have a preference for 401ks is not imposing anthing on the employer.

It IS irrelevant - regardless of your "want." The system was structured to provide LIFETIME INCOME at a DEFERRED date. It does that. Nothing more, nothing less.

So? You have preference for lifetime income products. I don't. Again I'll state. It's my preference. You can have your own preferences.

It IS NOT a haircut. It IS the actuarial equivalent of what you would get at a future date. It DOES take into account the time value of money. Simple financial concept. Why would they give you the equivalent of $X dollars a month for your life expectancy unreduced if the promised benefit wasn't suppose to start for 20 years? I don't think you understand the concept of "actuarial equivalence."

I do understand. There you go again with the unfounded statements. It is just my preference to invest the money myself to exceed the assumptions made for the promised benefit that will start in x number of years. I also prefer to have control over the money. I don't need someone sending me my monthly benefit in retirement. If I want to blow some money on hookers and booze and waste the rest, then it is my option to do so. Yes before you post again, I know about lump sum distributions.

Why is it relevant that YOU want control? It is an EMPLOYER PROVIDED BENEFIT - that costs you nothing, is part of you employment arrangement with the company, is designed as the EMPLOYER sees fit, and WILL pay you an income stream at some point in the future.

Sure it costs me something. Do you think pension plans are free to the employer? It may cost matching funds to a 401k. It may result in lower pay than I may get elsewhere. It may mean higher deductibles or copays on health insurance. Maybe less vacation time.

It IS what is PROMISED by the employer - and your "wants" are really irrelevant.

Wants are never irrelevant. It is just that wants are sacrificed for other higher priority wants.

You TOTALLY misunderstand the purpose of a pension. It is a PROMISE to pay at retirement. You WANT it to be something it isn't - and was never designed to be. Consider it a "base line" income, or a "safety net" income when you hit a certain age. Similar in concept to Social Security.

There you go with the "misunderstand". Do you think someone your post has higher relevance if you fill it with capitalized words. Since you think I'm so dense, maybe you should try bolding the capitalized words next time. If you want a safety net, then have one. I said I prefer not to have one. That is it. If I really wanted a safety net, I'd take my stock investments and buy an annuity. You won't see me doing it.

Good. Portable or not, lump sum distributable or not, it IS a benefit you will have for hte REST OF YOUR LIFE. Not something you can say for certain about a balance in a 401(k) plan..

So?

Anxiously waiting for your response to tell me what else I may or may want since I'm incapable of making my own decisions.

PSU
Print the post Back To Top
No. of Recommendations: 1
"Not with tax free growth. That is the beauty of the 401k. The money that you put in is tax free, and grows tax free. And completely portable."

No... it is tax deferred, not tax free. There is a BIG difference. What you are doing is taking an immediate tax deduction, buying an investment, and turning any gain (dividends, interest AND CAPITAL GAINS) into "ordinary income" for tax purposes at the time of withdrawal/distributions.

There may be value in that, but it is more difficult than simply saying it is better than investing outside of the plan. Under our current tax code - if you invest in something OUTSIDE of a plan, and then receive dividends, 80% (usually) is received tax free. Capital gains, when you sell the investment, may be taxed at as low of a rate of 15% - AND if you have capital losses on other investments, you can offset the losses against the gains and reduce your tax bill even further.
Print the post Back To Top
No. of Recommendations: 0
All you seem to do is say "I want" and this doesn't provide it, so it must be bad.

BS. You are simply parroting those who have told you DC plans are better than DB plans.

Snarky is in the eye of the beholder. You call "actuarial equivalence" a "haircut." It demonstrates a lack of understanding, and snarkiness at it's highest level.

Learn something before you post again.

You demonstrate a "dislike" for something by comparing it to something it is not, and saying "see, it doesn't do what I WANT."

Not a valid argument at all - and you do nothing but condemn me as the messenger of the truth about retirement plans.
Print the post Back To Top
No. of Recommendations: 0
No... it is tax deferred, not tax free.

You understand correctly. The growth is tax free, (that is no tax friction when one buys and sells) but yes taxes on entire amount must be paid later. I explained this in the post above.

--
whyohwhyoh
Print the post Back To Top
No. of Recommendations: 6
All you seem to do is say "I want" and this doesn't provide it, so it must be bad.

I never said bad in my posts. That is something again that you are making up. You should really stop. Here is a simple example for you - they're serving vanilla and chocolate ice cream at a party. I ask for chocolate because I prefer it. That doesn't make the vanilla bad. I actually like vanilla. I just prefer chocolate. Is that a simple enough example for you? I guess I had to take it down to elementary school level for you to understand.

Snarky is in the eye of the beholder. You call "actuarial equivalence" a "haircut." It demonstrates a lack of understanding, and snarkiness at it's highest level.

No, that is not what I said. Let's review the thread. You said "you take an actuarially determined hit". I called it a haircut.

Learn something before you post again.

I'll post whatever or whenever I want. I'd suggest you stop with the attitude.

You demonstrate a "dislike" for something by comparing it to something it is not, and saying "see, it doesn't do what I WANT."

I did no such thing. I stated a preference. There are choices in this world. I may want a two-seater sportcar but I had to settle for a large, family vehicle to transport the kids. Therefore I settled for something else. I knew going in that the big family vehicle wouldn't do what I wanted.

Not a valid argument at all - and you do nothing but condemn me as the messenger of the truth about retirement plans.

Should I knell and kiss the ground in front of the MESSENGER OF TRUTH?

See I can capitalize words too. I did nothing to condemn you. Any condemnation, mocking or snarkiness on my part came when you decided to start your reply to me with "parrot a talking point". It was YOU that ramped up this discussion. You want to learn something about me. I'll match snarkiness with snarkiness. I'm OCD so I can keep it up. I've been here a long time so you may as well quit trying to scare me away.

Look into the mirror for the reason this exchange is happening.

PSU
Print the post Back To Top
No. of Recommendations: 0
Both pensions and 401(k)'s work with the right options and investments. But what happens when the rules change midstream?

I received this letter from Principal Financial Group two years after the Principal U.S. Property Separate Account experienced a Withdrawal Restriction no-one anticipated. I had turned 66 years back in 2008, invested my entire 401(k) in the PUSPSA because it was a fixed income account, and was the safest investment available according to Principal's website.

http://www.fiduciaryfactor.com/wp-content/uploads/2013/12/pr...

My Plan stated I could take my money at age 66 and continue to work, which is what I wanted to do, but Principal informed me they had imposed a new definition of retirement to include separation of service.

Under ERISA, can a service provider impose new rules on a Plan like this one?
Print the post Back To Top
No. of Recommendations: 0
Then, during the Withdrawal Restriction, I discovered Principal has used the remaining equity in the account to purchase almost a billion dollars worth of investments through their Forward Commitment program similar to this one where Principal guaranteed a commercial loan to a developer by signing a loan purchase agreement which committed the 401(k) account to purchase the loan if or when it defaulted, including unpaid fees, interest and other amounts payable, blah, blah, blah.... this $13 million loan was paid on an empty lot in Henderson, NV that had a street value of $3 million or less.

http://www.fiduciaryfactor.com/wp-content/uploads/2015/04/LO...

Can anyone suggest what Principal is doing is legal? Keep in mind this IS a Fixed Income account offered to 401(k) investors.

Dennis
Print the post Back To Top
No. of Recommendations: 0
In case anyone is interested, below are more court documents concerning the Henderson Nevada deal... I promise you it is an interesting read:

http://www.fiduciaryfactor.com/wp-content/uploads/2015/04/MO...

http://www.fiduciaryfactor.com/wp-content/uploads/2015/04/TR...

http://www.fiduciaryfactor.com/wp-content/uploads/2015/04/HE...

http://www.fiduciaryfactor.com/wp-content/uploads/2015/04/EL...

This is an example of what can happen with 401(k)'s under state regulations. Self Directed does not work, because the investor only has a choice of non-publicly traded investments, at least before 2008, the value of which is determined by the service provider. And few states can regulate insurance companies for the benefit of the investor.

We do need to get back to the pension system, utilizing features in the 401(k) program, and make it open it to the marketplace. In that way, fiduciary advisers can openly advise clients based upon market experience, and not hide under a cloak of security perceptions that simply do not exist.

Dennis
Print the post Back To Top
No. of Recommendations: 0
Here's another example of Iowa Justice when it relates to the 401(k) investor....

http://www.mondaq.com/unitedstates/x/66574/Employment/Federa...

And finally, the Henderson case established that the Principal US Property Account was not considered a legal entity which in fact cannot sue or be sued. Yet ERISA approved a case involving 401(k) investors in the separate account by calling the case IN RE PRINCIPAL U.S. PROPERTY ACCOUNT ERISA LITIGATION

Since the law requires that Principal owns the plan assets, as is also stated in an addendum to the group annuity, There were no plan assets in the US Property Account that were owned by the investors, so the IN RE litigation is invalid since Principal is suing themselves to make the issue disappear. And yes, after over 5 years of waiting for the Iowa District Court to decide on the class action issue, it failed to certify, coincidentally, the same month the Statute of Limitations expired. Go figure.
Print the post Back To Top
No. of Recommendations: 0
We do need to get back to the pension system, utilizing features in the 401(k) program, and make it open it to the marketplace.

Or perhaps tweak the 401k regulations to minimize shenanigans.

- For example require a low fee S&P500 fund with any 401k plan.

Portability is important as I worked one place for 2 years, then another for 6 months, then another for 2 years, etc. Yet I've now amassed over $500k in 401k related funds at the age of 41. Having access to this account much earlier than 65 gives me the freedom to quit my day job in my early 40's.

--
whyohwhyoh
Print the post Back To Top
No. of Recommendations: 0
Or perhaps tweak the 401k regulations to minimize shenanigans.

I agree... the problem is that people do not want to know what the industry is doing to separate many of us from our perceived wealth. My wife and I had almost $400,000 together in 2008, and 14 months later the value had plummeted by almost 50%.

You will want to protect your money by avoiding any variable or group annuity, and be sure your investments are valued by the market, and not some insurance company, which is what happens when you invest in an insurance company separate account. They are getting better at hiding the fact the investment is a separate account, so do your due diligence when picking the investment. If your employer claims the money is in a trust, ask to see the trust agreement. Principal offered a trust which was a subsidiary of Principal, but the trust was selective in not including all the separate accounts. Principal offered almost 30 separate accounts, but only a few were protected in a trust. And if you have an annuity, read it including all addendums.
Print the post Back To Top
No. of Recommendations: 1
My wife and I had almost $400,000 together in 2008, and 14 months later the value had plummeted by almost 50%.


And in 2015, where is it?
Print the post Back To Top
No. of Recommendations: 0
"...but Principal informed me they had imposed a new definition of retirement to include separation of service."

NO! Principal did NOT impose a NEW condition. The liquidity crisis in real estate markets triggered Principals right to impose restrictions that were ALWAYS contained in the operative investment documents.
Print the post Back To Top
No. of Recommendations: 0
I am glad you asked... we were both 67 years old when we got our money from Principal, and as you can see in the letter, we terminated our employment in order to salvage what was left.

If you Google Earth our address in the letter, 113 Sherwood Dr, Branson, MO, you will find it is a $400,000 home in a gated golf course village known as Pointe Royale. We also owned a 2005 40' diesel motorhome.

We no longer live there. We moved West to another state to be closer to our adult children, in a $60,000 home we bought at auction from Fannie Mae. The motorhome was sold, and all our remaining cash, including the remaining 401(k) funds, were used to pay off our outstanding debt. While working, our comfort level financially was to keep at least a $15,000 balance in our checking account. Now the balance hovers around $1500. We are living on social security, and occasionally work when we can find it. The siblings also help when they can.

Mjolah's post on 4/29 hit the nail on the head... the industry
is dependent on the perception of stability
. Unfortunately, there is no stability, only a perception, and there are no safety nets in the event of failures.

Dennis
Print the post Back To Top
No. of Recommendations: 0
"Since the law requires that Principal owns the plan assets, as is also stated in an addendum to the group annuity, There were no plan assets in the US Property Account that were owned by the investors"

I think it is necessary to point out that under no circumstances do the "participant/investors" "own" anything in their retirement plan accounts. They are "beneficiaries" of the trust or insurance contracts in the plan.

In the law, a "trust" owns legal title to the assets held in the trust, but must use them for the purposes specified in the trust documents. In the case of retirement plan, those purposes are limited to providing the benefits promised under the terms of the plan (which in the case of a 401(k) plan is defined as the vested account balance at the time of distribution, and in the case of a pension plan is the accrued benefit payable per the terms of the plan). In the case of a "separate account" a "trust" still exist - as "separate account assets" are not part of the insurance company's general assets and are not part of it's balance sheet. In the case of an insured product (an annuity, group annuity, or other), the assets are part of the insurance company's assets and what is a plan asset is not the underlying investments that the insurance company buys, but the "annuity, group annuity, or other" "contract" that spells out what is owed and when.

The truth is, there is NO inherent right for 401(k) participants to be able to manage their account balances. That is merely a feature that is allowed, and is part of hte plan design (and is a feature that is usually in the plan) - but I see all the time plan's that don't allow participant direction and employ professionals to manage the assets.
Print the post Back To Top
No. of Recommendations: 0
NO! Principal did NOT impose a NEW condition. The liquidity crisis in real estate markets triggered Principals right to impose restrictions that were ALWAYS contained in the operative investment documents.

Good point.... so what you are saying is that the Plan Documents have no value, since Principal can redefine them? Are they not approved by the IRS, and any departure from the document would violate IRS rules, especially the tax exempt status of the investment? I do not recall any statements in my plan documents that state the service provider could do any of those things.

But I am glad you are still here.... perhaps you could explain the loan purchase agreement and how it can legally play into a fixed income account?
Print the post Back To Top
No. of Recommendations: 0
When you "require" a specific type of investment, you destroy the "fiduciary obligations" that currently exist to keep plan's and the people who manage them in check.

It has been proposed that a low cost index be mandated (mostly by Vanguard and Bogle) - but the problem with that is that there is no consensus that such a fund is appropriate. You believe it to be so. I can point to many many others who say you must have active management to succeed. Who's right? I can point to studies that indicate either - depending on the time frame, the funds involved, the manager, the index and whatever.

Active vs. passive is a religion - it's not universally agreed upon which is correct.

Also, there is no inherent right to direct the investments in a 401(k) plan - see my other post. Those plans that don't allow participant direction and have professional management have been shown to usually outperform the participant directed one. Indeed, in Schwab's book of 401(k) business, participants that have brokerage accounts in their 401(k) plan (the ultimate in investment control) underperformed those who didn't by 200 basis points (2%) - a sizeable amount.

As far as portability goes - I'm going to have to disagree. If "control" is what you want, the OK. But if retirement income is important - then it's less relevant as a pension provides a guaranteed income regardless of where you end up.
Print the post Back To Top
No. of Recommendations: 0
Mjolah,

I agree with everything you stated in this post. Early in my conversation with Principal I was informed "it is NOT your money!. The entire 401(k) protocol relies on a fiduciary standard that our regulators can't seem to wrap their heads around. The SEC can't come up with an equitable definition without Congressional approval, which will never happen because the industry lobbyists are in control of congressional wallets. And the DOL seems to rely on disclosure rules, which IMHO, is totally ineffective.

It is obvious that Principal criminally breached it's fiduciary responsibilities, yet no action was taken against them by the DOL. Principal knows me intimately, has threatened me with litigation, and FYI, are likely following this post as well.

I have sent countless emails with documents to Joe Nelson, Chief Investigator in Kansas City, to no avail. As a former ERISA Attorney, you can appreciate the gravity of actions such as Principals', when hundreds of thousands of investors retirements are at stake.

We need solutions,and due diligence can be a start for the individual investor to take some initiative to protect his/her retirement.
Print the post Back To Top
No. of Recommendations: 0
"...so what you are saying is that the Plan Documents have no value, since Principal can redefine them? Are they not approved by the IRS, and any departure from the document would violate IRS rules, especially the tax exempt status of the investment? I do not recall any statements in my plan documents that state the service provider could do any of those things."

No, that is not what I am saying. The plan document is controlled by the employer - and that is subject tot he IRS scrutiny (and may have been approved by the IRS under their "determination letter program" - which "pre-approves" certain master and prototype plan documents in use today, plus allows individually designed plans to request such a determination). The IRS' approval however only applies to the terms of the plan and their compliance with the Internal Revenue Code sections applicable to qualified retirement plans (IRS Section 401(a) et. seq.) - and does not enforce the "fiduciary" obligations - which come under the purview of hte Department of Labor.

The operative "investment documents" are separate from the plan documents - and the investments typically are selected by the plan fiduciaries (or one hire to perform that task) and the standard applicable to the selection process is contained in ERISA Section 404 - (and for participant directed plans, specifically in the regulations issued by the DOL under ERISA section 404(c)).

The investment documents are governed by the SEC (under the Investment Company Act of 1940 - which governs regulated investment companies (usually called "mutual funds), and under the Investment Advisor's Act of 1940 (governing those who manage mutual funds), or under the Securities and Exchange Act (for individual securities, and certain types of transactions - including insider trading rules). Other investments are governed by other entities. Insured products are governed at the state level in both the insurance companies home state AND the state in which the insurance product is sold (and that is with respect to "insured" products that are part of the companies "general account). Separate account products are NOT insured, and hence come under the SEC rules with respect to the manager, and are held in the trust established by the plan - so are under the DOL's jurisdiction with respect to the fiduciary obligations (and in the case of a separate account, the insurance company/investment manager IS considered a fiduciary under ERISA with respect to each plan that invests in the account). "Collective Investment Funds are issued by a bank/trust company, and hence are subject to whichever entity regulates the bank in question - which is dependent on whether the bank is state chartered or nationally chartered. That could mean state regulators, the Office of the Controller of the Currency (OCC) or the FDIC - and sometimes others, as well. CIFs are "pass through entities" like insurance company separate accounts, and hence the manager of thCIF is also a fiduciary with respect to plans that invest in them. Managers of mutual funds are NOT fiduciaries - as the plan doesn't own an interest in teh underlying investments - only in the until of the mutual fund they hold.

Now, keep in mind that each "investment" held by each of those investment types (mutual fund, insured product, separate account or CIF) is ALSO subject to the law of each state under both Blue Sky Laws (the state level equivalent of the SEC and the '32 Act), and any other laws that apply. In the case of real estate, there are state based rules on deeds, mortgages, deeds of trust, housing codes, safety codes, landlord tenant laws and who knows what else.

The previous posts about the sale pursuant to a deed of trust was a state based foreclosure action - just any anyone who doesn't pay the mortgage on real estate is subject to. It is totally irrelevant that the asset was held in a separate account that was held by a 401(k) plan. A mortgage existed. The mortgage went into default. The property was foreclosed on and sold.

Not any different that a mutual fund that held stock in a company that went bankrupt. Some investments work. Some don't. All of the is independent of who holds the investment - including retirement plans.
Print the post Back To Top
No. of Recommendations: 0
"The entire 401(k) protocol relies on a fiduciary standard that our regulators can't seem to wrap their heads around. The SEC can't come up with an equitable definition without Congressional approval, which will never happen because the industry lobbyists are in control of congressional wallets. And the DOL seems to rely on disclosure rules, which IMHO, is totally ineffective."

The SEC has no jurisdiction over retirement plans - only some of the investment products that MAY be included in a retirement plan. The DOL governs the fiduciary obligations in selecting those investments - and they have had rules in place since 1974 about how that should be done. In deed, they just released proposed new updates to those regulations - which are in public comment period (and most of the industry hates them - because they in fact tightened the rules considerably with respect financial advisors' role with respect to the plan AND the individual participants).

I am not sure Principal was "criminal" or in "breach" of their fiduciary duties. Indeed, the ability to freeze the investment from withdrawals was consistent with their fiduciary duties to protect ALL of the investors in the fund. If they allowed some to withdrawal, that would have left the remaining investors with the dog real estate - who would have suffered even greater losses. Principal as a fiduciary had to look at the whole of the investors and do what was best for the group - which was to allow for a more or less orderly liquidation of real estate - without just dumping everything at bargain basement prices. Some of the properties were let go to foreclosure - as that actually reduced losses (properties weren't worth the mortgage balance). Principal was sued - and as far as I know, in all of the cases, they prevailed. Keep in mind, the fund was DESIGNED to invest in illiquid assets - and when the bottom fell our of real estate - they got caught like everyone else. I still have a property I own (my own house) that has a mortgage balance higher than the property could be sold for. I just keep making payments on it - and hopefully it will either appreciate or I will amortize the loan enough that I can sell it at a break even (if I want to move).

Fiduciaries don't need to have super powers to see what the future will bring - they just have to have a "prudent process" to manage the assets - consistent with that which a professional would use in like circumstances. Principal wasn't "unique in getting hammered in the real estate market - indeed - they were consistent with what other professionals experience and did.

The problem is, "individual investors" is a misnomer. Most people have no aptitude or desire to be investors - which is why professional management is a solution. The best we can do is make most effective savers - which is the biggest determinant of the amount one will have at and in retirement. You wouldn't go to an auto mechanic for brain surgery? Or a brain surgeon for auto repairs? Because not everyone has the aptitude for those things - but yet we seem to think we can turn most people into investment professionals. I've bee in this industry for over 30 years - and it has never worked - and it never will....

Keep in mind that many people here on the Fool - ARE those with the aptitude (and the interest - or they wouldn't be here) - BUT THAT ISN'T TYPICAL of the population at large - and the "rules" we have - or need to have - HAVE TO APPLY TO ALL - not just those like the Fools here.
Print the post Back To Top
No. of Recommendations: 0
I'm trying to understand why you wanted to cash out your entire position at the bottom of a market decline. I haven't been following this thread too closely, but it seems like you would have been just fine if you had waited for things to come back? I have a 401(k), like most people reading this, so I'm interested in due diligence issues, but your story seems like one of poor timing rather than improper diligence. Sorry if I missed a detail somewhere, but why didn't you simply stay in the plan and take sensible distributions?
Print the post Back To Top
No. of Recommendations: 3
I am glad you asked... we were both 67 years old when we got our money from Principal, and as you can see in the letter, we terminated our employment in order to salvage what was left.

So, you sold at the bottom?

Yes, I get that you were 67, wanted to retire, and therefore, wanted to get your money out. But selling at the bottom is the one way to ensure that you will have losses. If, instead, you had been able to let the 401(k) money ride in the market for even a couple of years, you probably would have seen a significant recovery.

If I look at my rollover IRA, which did not have any additional contributions made during this timeframe - only reinvestments and some trades, the pattern of the value is similar to your accounts. By Mar, 2009, it was only worth 57% of what it had been worth the peak it had reached as of Oct, 2007. (Lehman declared BK in Sept, 2007 - kickstarting the drop in market values until they reached their bottom in Mar, 2009.) If I had sold at that point, I would have lost 43% of my peak value. Because I didn't, by Jun, 2011, my account had recovered to about 83% of the peak value. And, even after another market drop back down to 72% of the peak value in Oct, 2011, the account recovered to the Oct 2007 value by March, 2013 and is now worth about 125% of the Oct 2007 peak. And that doesn't account for the 401(k) account that I have continued to make contributions to.

We moved West to another state to be closer to our adult children, in a $60,000 home we bought at auction from Fannie Mae. The motorhome was sold, and all our remaining cash, including the remaining 401(k) funds, were used to pay off our outstanding debt.

I would say that while lack of due diligence probably contributed to your woes, large contributing factors also appear to be the emotion of fear, combined with not having a plan to have debt paid off before your retirement date, without having to tap 401(k) funds.

I'm sorry that you are not living the retirement you had envisioned. However, I don't see your story as a reason that everyone should be forced to go back to a system that is completely based on pensions. If I were basing my retirement on pensions, I would be forced to work at least 10 - 12 more years than I plan to, and I would not have been able to have the career that I have had, because my job switches would have resulted in significant decreases in my pension benefits, as opposed to 401(k) funds that I was able to roll to an IRA. whyohwhyoh indicated that he is retiring 20 years or so early. And for those people who worked for companies that didn't even offer pensions (as many more companies offer 401(k)s than offered pensions), they may not be able to retire at all.

I do agree that more education on understanding retirement accounts and what they are invested in, as well as help on planning for retirement, could help more people live the retirement they have envisioned. But it's not like a lot of that information hasn't been available - it's more that many people haven't used the information that is available. As the saying goes - you can lead a horse to water......

For those who take advantage of the information available, 401(k)s can offer some significant advantages over and above pensions. But in a market based economy, that's always the case - there are winners and losers, often based on who is using the information that is available.

AJ
Print the post Back To Top
No. of Recommendations: 0
No, that is not what I am saying. The plan document is controlled by the employer - and that is subject tot he IRS scrutiny (and may have been approved by the IRS under their "determination letter program" - which "pre-approves" certain master and prototype plan documents in use today, plus allows individually designed plans to request such a determination). The IRS' approval however only applies to the terms of the plan and their compliance with the Internal Revenue Code sections applicable to qualified retirement plans (IRS Section 401(a) et. seq.) - and does not enforce the "fiduciary" obligations - which come under the purview of hte Department of Labor.

You have educated me, and I appreciate that. As a Fiduciary Adviser, you also educate the employer. As a former ERISA lawyer and a Fiduciary Adviser, you are at the top of the food chain when it comes to knowing the rules. So is Principal, and it is Principal that designs the prototype plan documents, the employer simply fills in some blanks.

The caveat occurs when a company like Principal violates the fiduciary requirements. Between 2009 and 2012, Principal spent nearly a billion dollars on forward commitments similar to the Henderson deal, and another $2 billion on loss of equity in those purchases or other troubled assets Principal had outstanding loans with the seller that were purchased by the PUSPSA during the freeze.

One asset in Florida was purchased from a seller that had an outstanding loan with Principal, later wrapped into a CMBS, and was later foreclosed upon by the CMBS Trustee when Principal failed to make loan payments to itself on behalf of the PUSPSA!
Print the post Back To Top
No. of Recommendations: 0
I'm trying to understand why you wanted to cash out your entire position at the bottom of a market decline

Keep in mind that our funds had been "frozen" by Principal since September, 2008. We had no access to our money, and 14 months later, the $8 billion account had been devalued 50%, NOT the typical 20-25% that most funds had lost.

I know of no other 401(k) investment that was frozen during the 2008-2009 crisis. You guys could at least move your money, I and hundreds of thousands of other investors could not. You can read this link written by Eleanor Laise with the Wall Street Journal.

http://www.wsj.com/articles/SB124148012581385199

Yes, we were fearful that the account could go to zero. You could put your money into a money market and not lose much value, if any. We could not... and the PUSPSA was dropping twice as fast as other investments.

And yes, after we finally got our money out, we moved it into a more secure investment until later when we decided to mitigate our debt, since we were nearing the 70's and were no longer working. The Fannie Mae purchase was an investment in our retirement security.
Print the post Back To Top
No. of Recommendations: 0
I don't see your story as a reason that everyone should be forced to go back to a system that is completely based on pensions.

AJ,

I agree completely... pensions may not be the final answer, but the 401)k) program needs serious reform to work.

The issue is not the skill of the investor... that is a judgment call, and you are right, there are a lot of dry horses. The issue is the ability of a company like Principal to use fixed income resources contributed by investors like yourself to guarantee loans to developers that later go into default, or purchase troubled assets from sellers to which Principal had loaned money.

A fixed income account should offer a top level of security, and should NOT be used for opportunistic investing or to guarantee loans for developers that go into joint ventures with the service provider, only later to default on the loan and have it paid off by the 401(k) investor.

My question is, where is all that loan money the bank loaned to the borrower, since we eventually paid off the loan?
Print the post Back To Top
No. of Recommendations: 0
"The caveat occurs when a company like Principal violates the fiduciary requirements. Between 2009 and 2012, Principal spent nearly a billion dollars on forward commitments similar to the Henderson deal, and another $2 billion on loss of equity in those purchases or other troubled assets Principal had outstanding loans with the seller that were purchased by the PUSPSA during the freeze."

I agree that when a company violates their fiduciary obligations, there is a problem - but what you describe are conclusions that may OR MAY NOT be relevant in defining a "fiduciary breach." The questions is NOT what they did - but rather whether what they did was "prudent" as defined in ERISA to mean "with the care, skill and diligence" that one familiar with the requisite experience in the field would use in similar circumstances. Just because they engaged in practices that may have lost money does not mean they breached a fiduciary duty. It would have to have been "imprudent" from the perspective of the fiduciary AT THE TIME the actions took place. Principal - nor any other fiduciary is a sooth-sayer and that isn't the standard. Hind-sight is always 20-20. The question is, what were OTHER experts doing with OTHER retirement plan assets at the time - under the same (or similar) circumstances Principal was in. The "AT THE TIME" and "under the same (or similar) circumstances" parts are crucial.
Print the post Back To Top
No. of Recommendations: 0
"I know of no other 401(k) investment that was frozen during the 2008-2009 crisis. You guys could at least move your money, I and hundreds of thousands of other investors could not. You can read this link written by Eleanor Laise with the Wall Street Journal."

Many funds were, and continue to, from time to time be frozen. Notably, ALL stable value funds have clause allowing freezes when interest rates are adverse. Money market funds were frozen during the recession - and some still do from time to time - as they don't earn enough "interest" to even cover the fund's expenses.

Keep in mind the Principal fund was a "real estate" fund - particularly hard hit during the recession (and so 50% losses for real estate funds were not uncommon). It as also a "bubble" sector fund. I'm sorry you lost money (from your high point) but how much of that balance was attributable to bubble inflated prices right before the crash? Think "Enron." Many lost "millions" when that company went bankrupt - but they ONLY had "millions" because of the irrational exuberance (and criminal accounting) that artificially inflated the value of company stock. It was a house of cards - much like real estate funds right before 2008.
Print the post Back To Top
No. of Recommendations: 0
The question is, what were OTHER experts doing with OTHER retirement plan assets at the time - under the same (or similar) circumstances Principal was in. The "AT THE TIME" and "under the same (or similar) circumstances" parts are crucial.

Years ago I was an catastrophe adjuster, and one claim I recall was a homeowner that had roof damage to his home. When I inspect his roof, I found no damage. Immediately he questioned my judgment, since a neighbor had caused mechanical damage to his roof, and the adjuster paid him for a new roof. The homeowner complained that since he was honest and didn't hammer his roof, he was being penalized.

If I understand your comment correctly, if all the service providers are crooks, then it is ok for Principal to be a crook also. I think we can agree that using plan assets to pay off troubled assets owned by borrowers of the service provider should constitute self dealing and definitely a conflict of interest. Doing so with a real estate equity account disguised as a fixed income account constitutes Fraud by Inducement.
Print the post Back To Top
No. of Recommendations: 0
"If I understand your comment correctly, if all the service providers are crooks, then it is ok for Principal to be a crook also. I think we can agree that using plan assets to pay off troubled assets owned by borrowers of the service provider should constitute self dealing and definitely a conflict of interest. Doing so with a real estate equity account disguised as a fixed income account constitutes Fraud by Inducement. "

No. It's what OTHER professional, prudent fiduciaries were doing at the time. First, you need to separate the investment management part of hte issue from the "plan service provider" part of it. Principal serves in both capacities, but in totally different parts of the company. The plan service provider part offers plan sponsors the investment product offered by another part of the company. Second, the PLAN SPONSOR selected the fund in question. Principal merely offered it. The fiduciary decision to include it as an option in the plan was your employers. Principal had a fiduciary obligation to as a fiduciary to manage the investment prudently - as measured by the "prudent expert" standard previously discussed. As far as using "plan assets' to pay off other creditors is concerned - that simply isn't the case. Principal may have use some of the assets in the investment to pay off creditors of other assets in the investment. Principal DID NOT use separate account assets to pay of Principal's creditor. Principal could use (and indeed MUST use) general account assets (which are insured product assets) to pay Principal's creditors (and expenses, and salaries, and overhead, and everything else Principal is obligated to pay). Whether the investment in question was their insured product (a general asset of Principal's) or a separate account product (and they offered both, I believe) I can't say. But I can assure you that they didn't divert assets from a separate account. The State, the DOL, the FBI and others would be all over that (especially the DOL - and they do sue people and prosecute people for theft from plan assets ALL THE TIME.
Print the post Back To Top
No. of Recommendations: 0
"with a real estate equity account disguised as a fixed income account constitutes Fraud by Inducement."

Oh, and the fund in question was NOT a fixed income investment vehicle - it was an investment in income producing real estate - managed with an eye toward maximizing current income. In any event, a fixed income option is an investment in bonds (corporates, treasuries, various qualities/ratings, etc.) which do have market volatility (in addition to paying interest income can go up and DOWN in value). "Fixed Income" is anything but "fixed" either with respect to income or value. The only thing coming close is a stable value fund or a money market - but they can vary in returns (and value - especially if an SEC proposal is enacted) as well.
Print the post Back To Top
No. of Recommendations: 1
The question is, what were OTHER experts doing with OTHER retirement plan assets at the time - under the same (or similar) circumstances Principal was in. The "AT THE TIME" and "under the same (or similar) circumstances" parts are crucial.

If I understand your comment correctly, if all the service providers are crooks, then it is ok for Principal to be a crook also.

Actually, the way I read the comment, I didn't see anything about being a criminal (crook) at all. What I saw was that Principal should be held to the same standard as everyone else. If that standard says their behavior was criminal wrong-doing, then they should all be brought to trial in the criminal courts. If that standard says that they all made bad judgments, but there isn't enough evidence to try them on criminal charges, or if they are found not guilty when they were tried on criminal charges, then they aren't criminals. Then, it would be up to civil lawsuits to determine the level of Principal's liability for their bad judgment and/or behaviors that didn't rise to the level that they could not be convicted of criminal wrong-doing.

I think we can agree that using plan assets to pay off troubled assets owned by borrowers of the service provider should constitute self dealing and definitely a conflict of interest. Doing so with a real estate equity account disguised as a fixed income account constitutes Fraud by Inducement.

Actually, my take on this is that it would be up to the judge/jury in a criminal trial to make that determination. Every person/organization accused of a crime has the right to present a defense against the charges.

I saw several documents related to civil proceedings that you linked to, but nothing related to any criminal trials. Were there any?

AJ
Print the post Back To Top
No. of Recommendations: 0
I might add that the PUSPSA was not insignificant.... in 2008, it was Principal Life's #1 account with a balance of $97,825 at year end. Another large investor was Hy-Vee and Affiliates whose corporate headquarters were in Des Moines. Their employees had a balance of $75,720,932 at year end 2007.

In their form 5500 Schedule H reports, Principal Life reported approximately 9752 Plan Sponsors in 2006, 9,392 in 2007, and a whopping 17,800 in 2008. Yet in 2008 they report less than 5% the value of the transfers in when compared to 2006 & 2007 (($763,354,4512, $762,820,812, and $32,181,492). Transfers out are a different story, however, where they report a 30% increase in 2008 as compared to 2006 & 2007.

The net contributions, however, total $318,790,534 in 2006, $241,952,157 in 2007, and a negative $730,092,994 in 2008!

In other words, even though the number of Plan Sponsors almost doubled in 2008, the net contributions in 2008 (in minus out) decreased by a billion dollars when compared to 2006 & 2007.

IMHO, someone was asleep at the wheel at the Department of Labor.
Print the post Back To Top
No. of Recommendations: 0
Oh, and the fund in question was NOT a fixed income investment vehicle

Sorry to contradict you, but the Principal U.S. Property Separate Account WAS sold as a FIXED INCOME ACCOUNT by Principal. That is the ONLY reason I put my money in the fund in the first place!
Print the post Back To Top
No. of Recommendations: 2
Sorry to contradict you, but the Principal U.S. Property Separate Account WAS sold as a FIXED INCOME ACCOUNT by Principal. That is the ONLY reason I put my money in the fund in the first place!

Just because it's called 'fixed income' does not mean that the underlying principal value is guaranteed. If it was called the "U.S. Property Stable Value Separate Account" or the "U.S. Property Guaranteed Investment Contract Separate Account" or something similar, I might buy that it was a supposed have a guarantee on the principal. However, bond funds (which are also 'fixed income') go up and down in price all the time. They usually aren't as volatile as stock funds, but they still don't guarantee a specific price. For instance, here's a link to the Vanguard Total Bond Market index fund price for the past 10 years:
https://personal.vanguard.com/us/funds/snapshot?FundId=0584&... Not a flat line.

My guess is that you looked at all of the 'fixed income' choices in the 401(k) and chose the one with the highest return, thinking that as long as it was 'fixed income' that your principal would be safe. That was your first mistake. Your next mistake was in ignoring the rule of thumb that says 'Higher reward is generally synonymous with higher risk.' At a minimum, if you thought that the principal value was guaranteed, you should have looked at the price and/or NAV of the fund to see how stable it was. My guess is that it would not have been stable, but rather, would likely have had a general upward trajectory. If that was the case, you should have understood that it was not an investment that had a guarantee on the price, since the price had been going up, not staying steady.

AJ
Print the post Back To Top
No. of Recommendations: 0
Just because it's called 'fixed income' does not mean that the underlying principal value is guaranteed.

Of course I knew it wasn't a guaranteed return... I never said it was guaranteed.

In a Q&A published in March, 2011, Principal explained why they called the PUSPSA a fixed income account:

Why is the Principal U.S. Property Separate Account listed with the “fixed income” investment options on the participant Web site?

Principal Life Insurance Company places investment options into categories primarily to assist participants in diversifying their plan investments and creating allocation strategies that fit their particular needs.

Principal Life Insurance Company includes this Separate Account in the fixed-income category for purposes of asset allocation due to its low correlation with equities, its historic risk/return ratio, its historic low volatility, and the substantial portion of the Account return
based on income stream (rents).

In short, its returns have historically acted more like fixed-income returns. While the liquidity risk was considered and disclosed to investors, the liquidity risks historically were not such that it was believed this investment needed to be classified with other riskier, more volatile investments.

While neither bond investments nor this Separate Account have delivered
returns experts would have predicted 2 years ago, this Separate Account still has a better 5-year return than many equity investments and has continued to have lower historical volatility characteristics than stocks and volatility roughly equal to that of bonds.
Print the post Back To Top
No. of Recommendations: 0
Here is a Joe Levi Blog about the account...

http://joelevi.com/principal-financial-group-401k-black-tues...
Print the post Back To Top
No. of Recommendations: 0
and they do sue people and prosecute people for theft from plan assets ALL THE TIME. P

Since the plan Assets are owned by Principal, how can they steal them??

As far as using "plan assets' to pay off other creditors is concerned - that simply isn't the case. Principal may have use some of the assets in the investment to pay off creditors of other assets in the investment. Principal DID NOT use separate account assets to pay of Principal's creditor

Principal Life loaned money to developers and other buyers of commercial real estate. Principal Real Estate Investors, sub-manager of the plan, offered debt/equity financing to developers for a share in ownership, usually 40%. This was their forward commitment program.

If the loans defaulted, or the property never developed and lost value, as was in the case in 2008-2009, the PUSPSA would pick up the tab for the loss and Principal and its joint venture partner would part company.

Principal DID NOT use separate account assets to pay of Principal's creditor.

Ok, if you give me $1000 to invest, and I use the money to pay off loans I made to troubled asset accounts, or to pay off defaulted loans on property that were over-leveraged, call it what you want...

In 2006, Principal set up a $1 billion office fund with Trammell Crow to build office buildings. Below is the link to the GlobeSt.com article:

http://www.fiduciaryfactor.com/wp-content/uploads/2015/05/Gl...

The article describes Principal's relationship with their joint venture partners.

The source of the equity (aka loan guarantees)is the US Property Account. Principal is the majority partner.

"TCC will build and stabilize--then sell. "We will be selling to the market or selling to them [Principal],"

Ok... I think this is pretty clear. Principal is a majority partner, and the property may/may not sell to the PUSPA. So, Principal is the seller, and represents us as the buyer.

WE as investors, will provide the equity, then the property will sell either to someone else or to the account.

I suspect as a former ERISA attorney and a fiduciary adviser, you can see some issues with this activity?
Print the post Back To Top
No. of Recommendations: 0
Principal DID NOT use separate account assets to pay of Principal's creditor.

No, but they did use separate account assets to pay off loans to shell companies that have no assets, except the loan proceeds, and of loans to Principal's joint venture partners. I suppose you would call that "arm's length" self dealing. I call it money laundering.

Speaking of "another part of the company." Principal Life was the service provider, Principal Real Estate Investors was the sub-advisers to the account as a subsidiary of Global Investors, which is a subsidiary of Principal Life. Of course, Principal Trust was the trustee arm of the company, and a member company of The Principal Financial Group.

Do we see a pattern here....
Print the post Back To Top
No. of Recommendations: 5
Do we see a pattern here....

So, were there any criminal trials? I'm assuming not because I've asked you that question before, and that question has been ignored.

So, have you sued in civil court? If so, was that suit successful? Again, I'm guessing not, because you are here ranting instead of being under the seal of a settlement.

If you had left the money in, instead of pulling it out at the bottom, would your investment have been back near it's peak? Again, you've been asked that question but have not answered.

You act like you are attempting to try Principal here - that's not going to do you any good. This is now an 81 post thread, and every time someone tries to say - Sorry you lost money, but here's some reasons that may have contributed - you go off on another tangent with yet another rant, trying to show why you were wronged.

We get it - you invested in something you didn't understand. You are mad because you think that the administrator and your employer should have made it crystal clear to you what you were investing in, and had you known that, you never would have invested in it.* Instead, you feel that they tried to obscure it. And then when they implemented rules that were in the fine print (which you hadn't read), you claim that they harmed you while protecting their own interests. You don't acknowledge the assertions that other investors could have also been harmed even more than they already were if you had been allowed to withdraw your money.

Unfortunately, especially since you apparently haven't been able to prevail in court, I don't think you have much of a leg to stand on. The fact that you didn't understand what you were investing in - sorry - that's on you, and is the root cause of the issue, IMO. The fact that you didn't complain to your employer and run far away from an annuity based 401(k) - that's also on you. And then the fact Hopefully, telling your story on this forum will encourage some others to investigate their 401(k) investments more closely. However, your continued ranting is turning me off.

You had said at the beginning of the thread that you wanted to talk about how to improve disclosures for 401(k) plans. But I haven't seen any suggestions on how to do that - we just keep going back to how Principal wronged you.

I get it - you're mad. But it's 7 years later. And continuing to argue that you were wronged with everyone who points out that Principal was following rules that were disclosed to you (if you had chosen to take advantage of those disclosures) is getting a bit old.

If you really want to talk about disclosures for 401(k) plans, please start doing so.

AJ

*Of course, hindsight is always 20/20, and there's no chance at all that you were caught up in the real estate mania that was sweeping the country at the time.
Print the post Back To Top
No. of Recommendations: 0
And then the fact Hopefully, telling your story on this forum will encourage some others to investigate their 401(k) investments more closely. However, your continued ranting is turning me off.

AJ,


The title of this post is Due Diligence, and I can't find where I ever stated that I wanted to improve disclosure, because disclosure rules do not work. My rantings are mostly responses to other posts, including yours, but I can see that you hit on the most important point I am trying to get across... encouraging others to use due diligence to investigate their 401(k) investments.

Yes, there was a class action filed that everyone thought would result in a settlement. The ERISA litigation lasted almost six years before the district court in Iowa refused to certify the class, costing hundreds of thousands of investors the right to recover their losses since the statute of limitations had already expired.

And yes, I was a party to the lawsuit, and days after the judge failed to certify the class action, Principal came up with an aggregate settlement offer for the 89 plaintiffs remaining. The offer was not reasonable, and I declined the offer. I am not at liberty to discuss the offer details.

I guess I haven't done a good job of getting the message out that despite an investor's best efforts to protect their investment, you can still get burned. Principal publicly stated they were freezing the account to protect all of us, which most of us accepted. I only became upset when they changed the Plan rules, since I was at retirement age and still could not get the money rolled over to another investment.
Later, when I discovered the over billion dollars that represented withdrawal requests by investors was used instead to purchase troubled assets that Principal had loaned money to, and defaulted loans the account guaranteed without anyone's knowledge. There were no disclosures that they would use the money for Tarp purposes.

I do appreciate your participation in this post, however, and hopefully you will retire comfortably.

Dennis
Print the post Back To Top
No. of Recommendations: 0
So, were there any criminal trials? I'm assuming not because I've asked you that question before, and that question has been ignored.

No one really knows for sure... I have asked for records from the DOL under the Freedom of Information Act, with no reply. The Justice Department would be the ones to prosecute the DOL action, and Eric Holter's office has been offering Deferred Settlement Agreements rather than a plea with the corporate entities.

Don't have a clue.... I was at retirement age and wanted the money rolled over to another investment, which millions of others, including yourself, was able to do. The main difference was that out of the thousands of investment options available to the investors in 2008 and 2009, the PUSPSA was the ONLY investment that was frozen.

Other real estate accounts may have been frozen for contributions coming in, but NOT for withdrawals.

everyone who points out that Principal was following rules that were disclosed to you

This is simply not a true statement... Principal's actions were never disclosed to the investors, except for the fact they could freeze the account. And their actions after freezing the account grossly violated any fiduciary standard. Enough said.
Print the post Back To Top
No. of Recommendations: 0
out of the thousands of investment options available to the investors in 2008 and 2009

Did you have your entire 401k account invested in real estate in 2008-2009?

--
whyohwhyoh
Print the post Back To Top
No. of Recommendations: 3
The main difference was that out of the thousands of investment options available to the investors in 2008 and 2009, the PUSPSA was the ONLY investment that was frozen.

Really?

http://www.bloomberg.com/apps/news?pid=newsarchive&sid=a...
http://www.nytimes.com/2008/01/01/us/01pool.html?pagewanted=...
http://www.wsj.com/articles/SB118591963252683893
http://www.bloomberg.com/apps/news?pid=newsarchive&sid=a...
http://en.wikipedia.org/wiki/Reserve_Primary_Fund
http://online.barrons.com/articles/SB121159302439419325?tesl...

Principal was following rules that were disclosed to you (if you had chosen to take advantage of those disclosures)

There - fixed that for you.

This is simply not a true statement... Principal's actions were never disclosed to the investors, except for the fact they could freeze the account.

Oh, so you asked for and read a prospectus for your investment before you invested, so you knew what actions could be taken? And you read every annual report from your 401(k)?

AJ
Print the post Back To Top
No. of Recommendations: 0
Did you have your entire 401k account invested in real estate in 2008-2009?

I had 90% of my 401k account invested the Principal U.S. Property Separate Account, which Principal listed as a Fixed Income Account, and was marketed by Principal as their safest investment offered, second only to a money market account. The investment modality was a non-publicly traded real estate fund, sub-managed by Principal Real Estate Investors.

I discovered only recently that Principal Real Estate Investors was also secretly using the fund to guarantee debt/equity lending packages to developers through banks in exchange for part ownership in the assets involved. The PUSPSA was used guarantee loans totaling hundreds of millions of dollars to shell companies with no assets.

When the financial crisis hit in 2008-2009, Principal knew some of these loans would default, and since they signed loan purchase agreements with the banks, they would have a liquidity crisis of their own in the account.

I believe these factors played a major role in their decision to freeze investor's 401k funds, and in part the ultimate devaluation of the account. The purpose of this post was to warn investors of the pitfalls of investing without first conducting a due diligence investigation.

To support my abstract, I used my experience with Principal, which to some of the commenters represented ranting,, for which I apologize.
Print the post Back To Top
No. of Recommendations: 0
Principal listed as a Fixed Income Account, and was marketed by Principal as their safest investment offered, second only to a money market account.

Were there any 401k freeze issues with any total stock market type funds? I'm curious since that is where a majority of my 401k funds reside.

--
whyohwhyoh
Print the post Back To Top
No. of Recommendations: 0
Oh, so you asked for and read a prospectus for your investment before you invested, so you knew what actions could be taken? And you read every annual report from your 401(k)?

AJ,

Since this was a separate account wrapped in a group annuity, the account was not an SEC regulated fund, and there was no prospectus. In fact, Principal does not report any financials to the SEC on their group annuities except for this statement taken from one of their 10K reports:

http://www.fiduciaryfactor.com/wp-content/uploads/2013/12/se...

Yes, I did read every PUSPA annual report since 2004, and found several other discrepancies I decided not to report on in this forum. Read them yourself if you like:

http://www.fiduciaryfactor.com/wp-content/uploads/2013/12/20...

http://www.fiduciaryfactor.com/wp-content/uploads/2015/02/20...

http://www.fiduciaryfactor.com/wp-content/uploads/2015/02/20...

http://www.fiduciaryfactor.com/wp-content/uploads/2015/05/PR...

http://www.fiduciaryfactor.com/wp-content/uploads/2015/05/PR...

http://www.fiduciaryfactor.com/wp-content/uploads/2015/05/PR...

Of course, you won't find anytime in the reports about a withdrawal freeze, redemption queue, withdrawal limitation, etc. To find that disclosure, you have to locate the rider attached to the group annuity contract that the DOL does not require the employer to provide the investor unless requested.

Iowa Code 508a is the only language that regulates Principal's actions:

http://www.fiduciaryfactor.com/wp-content/uploads/2015/01/St...

If you go to this Adoption Agreement Prototype for Savings Plans Amendment, you will see at the bottom of page 21 of the section entitled Separate Account Investment Rider--Premier the Principal US Property Separate Account is listed on the bottom. This list comprises all the investments offered, all of which were separate accounts, none of which were regulated by the SEC, and none of which were publicly traded.

The disclosures are on pages 17 & 18, and on page 21 it shows no limit on fees charged. Note this attachment was likely amended in 2007, just before the freeze. I don't know if previous versions contained the same language.
Print the post Back To Top
No. of Recommendations: 0
I forgot to attach the amended rider... and I see the amendment date is January 5, 2009, a few months after the freeze.

http://www.fiduciaryfactor.com/wp-content/uploads/2013/12/ad...
Print the post Back To Top
No. of Recommendations: 0
Were there any 401k freeze issues with any total stock market type funds? I'm curious since that is where a majority of my 401k funds reside.

I haven't heard of any ERISA regulated publicly traded fund being impacted by a freeze. The SEC strictly regulates those funds, where they have no control over insurance company separate account investments. I think Mjolah may be an investment adviser and hopefully will comment on your question.
Print the post Back To Top
No. of Recommendations: 0
I did find this quote in the Barron's article of interest, "INVESTMENT BANKS HAD THEIR own problems. They were taking billion-dollar write-offs related to the turmoil in the subprime-mortgage market and were stuck holding billions of dollars of leveraged-buyout bank loans."

Principal deferred this problem to the PUSPSA fund after the fact, and the investors were left holding hundreds of millions of dollars of leveraged buy-out bank loans that belonged to Principal. If you review the annual reports for 2008-2009 and 2010, you will see these loans were paid during the crisis.
Print the post Back To Top
No. of Recommendations: 0
Sorry to contradict you, but the Principal U.S. Property Separate Account WAS sold as a FIXED INCOME ACCOUNT by Principal.

Yea, well, if you read the investment materials put out by Principle, it clearly was not a fixed income vehicle. It was a HIGH CURRENT INCOME vehicle - very different from "fixed." Your employer may have misled you....

If you want copies of the documents, I have them.
Print the post Back To Top
No. of Recommendations: 0
"I suspect as a former ERISA attorney and a fiduciary adviser, you can see some issues with this activity? "

No, I don't. Principle MADE INVESTMENTS with the assets of the fund. Some of those investments entailed purchasing real estate, and some entailed purchasing other instruments that were consistent with the objectives of the fund. Investing in debt (i.e. providing mortgage financing) to developers is a legitimate investment. Even being on the hook (non-recourse) financing) for losses is not unusual - indeed, it is the norm in commercial real-estate transactions.

You seem to be second guessing the actions of the professionals because they lost money - without any proof that what they did was "imprudent."

Again, I ask, what were OTHER professionals with similar experience in similar situations doing at the time? Add to that, how much more would they (and you) have lost had they not done what they did?
Print the post Back To Top
No. of Recommendations: 0
"Do we see a pattern here.... "

Yes - a pattern of using separate "entities" for a variety of reasons - and not at all unique in financial services and/or retirement plan servicing. Go look at fidelity and FISCO, FIRSCO, and about 200 other entities under the umbrella. Look at J.P. Morgan/Chase. I defy you to count the subs....

There are legitimate reasons to structure a business as described - and it does not mean that it is in any way inappropriate.
Print the post Back To Top
No. of Recommendations: 0
"This is simply not a true statement... Principal's actions were never disclosed to the investors, except for the fact they could freeze the account. And their actions after freezing the account grossly violated any fiduciary standard. Enough said."

First, the information was disclosed to the person who bought the fund - and that would be the fiduciaries of the plan (so blame your employer if you didn't get the information). Keep in mind, YOU don't own the assets in a retirement plan - the trust does. The trust simply allows you to direct the account that will provide you with benefits (and it doesn't have to, actually).

Second, upon request, and on demand on-line, the entire fund documentation is available. If you invested without investigating, well, that's not Principle's fault.
Print the post Back To Top
No. of Recommendations: 0
"Principal listed as a Fixed Income Account, and was marketed by Principal as their safest investment offered, second only to a money market account.

Were there any 401k freeze issues with any total stock market type funds? I'm curious since that is where a majority of my 401k funds reside."

No. Because of the nature of stocks, there was never a liquidity issue....
Print the post Back To Top
No. of Recommendations: 0
I see nothing about 401k investors in these articles; of course, other non-ERISA regulated fund investors got hurt...

You fail to understand. Investments are not "ERISA regulated" or not. They are investments - and MAY be included in an ERISA covered plan. Some investments, by their nature, only accept investments from ERISA plans (CIFs, and some separate accounts) but that does not make them what you seem to think they are. The funds list in the links aj provided are investments that may (and were) included in ERISA covered plans.

Your gripe is with Principle - and in reality, you should be complaining about your employer - as a fiduciary to your plan who SELECTED that investment option for use in the plan.
Print the post Back To Top
No. of Recommendations: 0
if you read the investment materials put out by Principle, it clearly was not a fixed income vehicle. It was a HIGH CURRENT INCOME vehicle - very different from "fixed." Your employer may have misled you....

mjolah,

I believe we agree on this issue.... the PUSPSA was NOT a fixed income vehicle, but it was not my employer that misled me. It was PRINCIPAL that misled hundreds of thousands of investors...

In the Q&A published by PRINCIPAL dated April 1, 2010, they included a question as follows:

Why is the Principal U.S. Property Separate Account listed with the “fixed income” investment options on the participant Web site?

• Principal Life Insurance Company places investment options into categories primarily to assist participants in diversifying their plan investments and creating allocation strategies that fit their particular needs.

• Principal Life Insurance Company includes this Separate Account in the fixed-income category for purposes of asset allocation due to its low correlation with equities, its historic risk/return ratio, its historical low volatility, and the substantial portion of the Account return based on income stream (rents).

• In short, its returns have historically acted more like fixed-income returns. While the liquidity risk was considered and disclosed to investors, the liquidity risks historically were not such that it was believed this investment needed to be classified with other riskier, more volatile investments.

• While neither bond investments nor this Separate Account have delivered returns experts would have predicted 2 years ago, this Separate Account still has a better 5-year return than many equity investments and has continued to have lower historical volatility characteristics than both stocks and bonds.


http://www.fiduciaryfactor.com/wp-content/uploads/2013/12/qu...
Print the post Back To Top
No. of Recommendations: 0
" It was PRINCIPAL that misled hundreds of thousands of investors... "

Read what Principal wrote - they DID NOT call the investment a "fixed income" investment - they DID put it in the "fixed income" category for asset allocation because it is an "income goal" investment - not one where principle appreciation was primary.

There is a BIG difference between using a real estate fund in your portfolio for income and analyzing your asset allocation including it in the fixed income category - and it being a "fixed income" investment. The difference being that a "fixed income" investment invests in bonds that define the income to be produced (absent default) and a real estate fund invests in income producing real estate (or real estate related investments) where the income is variable.

That said - IT IS TOTALLY IRRELEVANT - because in both cases, principle is NOT "fixed" and in bond funds, investors ROUTINELY lose principle (and the income can also vary, as the fund buys and sells the underlying bonds held in the portfolio).

I do not get your point. If you THINK Principle breached their fiduciary duties to you - you 1) HAVE TO identify the standard to which they are held (which is what OTHER professional real estate portfolio managers were doing at the time); and 2) show that the breach is what caused your losses. - YOU HAVE FAILED ON BOTH COUNTS.

I lose money on investments ALL THE TIME (but overall make money) - and some of my losses are in 401(k) plans I have. That doesn't mean the plan fiduciaries breached their obligations (look up "KEY" (KeyBank) - a company I used to work for, and still have a 401(k) account with - invested in Key stock - which suffered a huge downturn during the 2008 recession. They were sued (not by me) and the Plaintiffs LOST at every turn - because even though Key stock lost value - it wasn't a breach of their duties).

Just for the record - I am a current ERISA attorney - but limit my activities to working with financial advisors (one of which I am not).
Print the post Back To Top
No. of Recommendations: 0
YOU don't own the assets in a retirement plan - the trust does. The trust simply allows you to direct the account that will provide you with benefits (and it doesn't have to, actually).

And in this case the trust was Principal Trust Company, a subsidiary of Principal Financial, and all in the family. Also, the Trust can selectively identify those investments they want to hold in trust, and to date, I have been unable to find a source that shows this account was actually held in a trust.
Print the post Back To Top
No. of Recommendations: 0
No, I don't. Principle MADE INVESTMENTS with the assets of the fund. Some of those investments entailed purchasing real estate, and some entailed purchasing other instruments that were consistent with the objectives of the fund. Investing in debt (i.e. providing mortgage financing) to developers is a legitimate investment. Even being on the hook (non-recourse) financing) for losses is not unusual - indeed, it is the norm in commercial real-estate transactions.

The $13.3 million purchase of a debt instrument on 12/08/2008 originated with a Purchase and Sales Agreement dated June 29, 2007 between the developer and the service provider, involving a loan guarantee where the borrower is a shell company with no assets, the property being developed has a market value of $1.4 million, and a developer, Andrew Miller, owns a restaurant called Kitchen 56 in an old garage in Phoenix, AZ (aka Firebrand Group).

http://www.fiduciaryfactor.com/wp-content/uploads/2015/05/VE...
https://www.linkedin.com/pub/andy-miller/8/bb7/986
http://kitchen56.com/building-history/

The PUSPSA paid $13.3 million for the loan purchase, Principal reported the land value at $3.4 million in their 2009 Annual Report, Miller claims he could have sold the land for $1.4 million, and Principal sued Miller in 2009 for $1.5 million against a "loss" of $3,356,500. The "missing" $10 million must have went for hidden fees.

http://docs.justia.com/cases/federal/district-courts/nevada/...

Interestingly, the Order describes the PSA between the parties in some detail... in 2007, Vested assigned all interests to HLD, the shell company and loan borrower. Then on October 3, 2008, Vested would "purchase" HLD for $13,325,000 from another Shell Company, Henderson Apartment Venture, even though HAV, a Principal shell company, didn't exist at that time.

On October 14, 2008, Principal filed its LLC for HAV, after agreeing to "sell" it's interest. Then the reconciliation is listed, showing delinquent taxes, etc.

As a fiduciary adviser and former ERISA attorney, can you actually state this transaction was the norm in commercial real estate transactions, and was in compliance with regulations from whatever source?

If so, the industry has some serious problems....
Print the post Back To Top
No. of Recommendations: 0
"And in this case the trust was Principal Trust Company, a subsidiary of Principal Financial"

NO! The Trust would be the XYZ (name your employer) Retirement Plan Trust (name the actual "trust" name) and Principal Trust Company was the TRUSTEE.

A Trustee has "legal" title to the assets in the trust, but is limited to using them for the benefit of the "beneficial" owners of the trust (the participants in the retirement plan) - as defined in the terms of the Trust document.

Under ERISA, plan assets MUST either be held in a trust (it's "own" entity) OR in fully insured (general account") products. No exceptions. No excuses.

Can't say which is which for you, but if you give me your employer's name, I can look it up (it's public information at the DOL's "efast" website - where the "annual return of retirement plans" are stored (Forms 5500) - which usually indicates the capacities of each of the people being paid from the plan assets).
Print the post Back To Top
No. of Recommendations: 0
NOT being a professional manager of a real estate fund, I can't say this is the norm, or not the norm - and it is irrelevant if it is or not - the question is whether it was "prudent" which is defined as what would OTHER professional managers of real estate funds done at the same time under similar circumstances.

Find me an EXPERT in the field who will testify as to what they (and others) did, or would have done under the same or similar circumstances and then I will render you a "legal" analysis (no one will give you an "opinion - because if you find one who will so testify, others will find one with the same level of expertise who will testify to the exact opposite) about the fiduciary correctness of do so.

And by the way, you don't appear to be such an EXPERT in teh field of real estate fund management - so your conclusions are really without merit. The only way to TRULY determine that a breach occurred is for a trial to take place.
Print the post Back To Top
No. of Recommendations: 0
and by the way, giving copies of pleadings and others opinions about such things is equally irrelevant. In our system of jurisprudence, we have what is known as "notice pleadings" where details need not be provided - that's left for trial. The judges order is equally irrelevant with reviewing the entire case file and determining the whole of the situation being adjudicated.
Print the post Back To Top
No. of Recommendations: 0
Can't say which is which for you, but if you give me your employer's name, I can look it up (it's public information at the DOL's "efast" website - where the "annual return of retirement plans" are stored (Forms 5500) - which usually indicates the capacities of each of the people being paid from the plan assets)

I would appreciate that..

Pilot Catastrophe Services, Inc.
EIN 63 1012513

While you are in Efast, you might check on the form 5500 Schedule D and Schedule H forms filed by Principal for this account for 2006, 2007, and 2008. When I tried to get them, I was told by the DOL that someone had deleted them from the hard-drive, and I would have to get the archived copies in Washington, DC.

When I did get the Schedules, Principal reported approximately 9,700 active participating plans for 2006, 9,300 plans for 2007, and 17,000 plans for 2008. Why do you suppose they were able to double their business the same year they had record withdrawals, and yet reported only $32,000,00 in transfers into the plan?

Yet, with approximately one-half the number of plans in 2006 & 2007, they reported $763,354,412 transfers in 2006 and $762,820,812 transfers in during 2007.

Of course, I see no risk of perjury on these forms, so the filer can lie and get by with it?

Schedule H Forms:
http://www.fiduciaryfactor.com/wp-content/uploads/2015/02/PU...
http://www.fiduciaryfactor.com/wp-content/uploads/2015/02/PU...
http://www.fiduciaryfactor.com/wp-content/uploads/2015/02/PU...

Schedule D Forms:
http://www.fiduciaryfactor.com/wp-content/uploads/2014/01/PU...
http://www.fiduciaryfactor.com/wp-content/uploads/2014/01/PU...
http://www.fiduciaryfactor.com/wp-content/uploads/2015/02/PU...
Print the post Back To Top
No. of Recommendations: 0
Read what Principal wrote - they DID NOT call the investment a "fixed income" investment - they DID put it in the "fixed income" category for asset allocation

Do you really believe the average investor knows the difference? This is clearly an act of fraud by inducement, where Principal convinces investors to invest in a"fixed income" fund that is really NOT a fixed income fund.

And since Principal owns the plan assets, all the investor gets for his/her money is a piece of paper with an IOU on it. Apparently the service provider can take ownership of the plan assets and commit them to banks as loan guarantees, then take the loan proceeds and leave the investor owing the debt with no recourse. And should we discuss the DOL rules concerning audits of plan assets? A level 3 audit means NO audit, as required by the DOL for the service provider's financial records. And yet the DOL requires all plans to be audited each year by a qualified auditor.

As I addressed earlier, I suppose it is legal for Principal to purchase an investment on behalf of the account that has an outstanding loan on it, held by Principal, then bundle the investment in a CMBS, default on it's own loan, and let the CMBS trustee foreclose and sell the investment at auction for a fraction of it's cost to the investors. That certainly bespeaks of a prudent act. In fact, there were several other short sales where other investment firms assumed control of PUSPSA real estate by purchasing loans that were in default by Principal.

The DOL in Kansas City completed an investigation of these issues, and I believe it was political pressures that prevented them from moving forward to prosecute. So much for protecting the public. Principal also rewrote their Code of Ethics in 2012, which tells me someone slapped their hands without public restitution.

I definitely agree with your comments that we need to return to some form of pension plan, something that will combine the benefits of the 401k with that of the pension plan.

All the window dressing in the world will not explain Principal's actions in 2008 through 2010 during the withdrawal restriction. I appreciate the fact it is your job as an ERISA attorney to defend Principal's actions at all costs, and I respect your efforts to do so.

But the final answer is to abolish the DOL and rewrite ERISA where it actually protects the investor rather than the institutional investor that typically wants to steal the investor's money.
Print the post Back To Top
No. of Recommendations: 0
If interested, here is a link to one of the foreclosures in Florida for Lyons Technology Park in Coconut Creek...
http://www.bizjournals.com/southflorida/stories/2010/04/19/d...

This link is for the other warehouse on the same property....
http://www.bizjournals.com/southflorida/stories/2010/04/12/d...
Print the post Back To Top
No. of Recommendations: 0
I can't close tonight without another prudent investment by Principal.

Lindenhurst Village Green (55 acres of land in Illinois)was purchased by Principal for the PUSPSA in 2009 at the bottom of the market for $22.7 million. This article published in the Chicago Real Estate Daily reports the seller purchased the property with a $19.7 million loan with BofA in 2007, at the peak of the market. The article states the seller would like to at least get the loan balance out of the sale of the property, which obviously would be less than $19.7 million:
http://www.chicagobusiness.com/realestate/20091022/CRED03/20...

After paying the $22.7 million in 2009, Principal reports the Gross Asset Value of the wholly owned property in their 2010 Annual Report Schedule of Investments at $6.9 million, a loss in value of 300% in 14 months. I would guess another loan purchase agreement?
Print the post Back To Top
No. of Recommendations: 0
"The DOL in Kansas City completed an investigation of these issues, and I believe it was political pressures that prevented them from moving forward to prosecute."

That is pure, unadulterated speculation. I can assure you, the DOL does NOT bow to political pressure.

The problem throughout this thread is that you have NEVER articulated WHAT OTHER EXPERTS in the field of managing real estate funds of this type did, or would have done, under the same or similar circumstances.

I would suggest the DOL determined that others would have done the same....

Hence, no breach. In addition, no crime was committed, and therefore no prosecution.
Print the post Back To Top
No. of Recommendations: 0
"This is clearly an act of fraud by inducement,"

You are drawing a conclusion not supported by the evidence. If you have a problem with language used, go lodge a complaint with the regulator - because I can assure you, everything communicated was scrutinized ad infinitum to be consistent with the regulations.

"And since Principal owns the plan assets, all the investor gets for his/her money is a piece of paper with an IOU on it. Apparently the service provider can take ownership of the plan assets and commit them to banks as loan guarantees, then take the loan proceeds and leave the investor owing the debt with no recourse."

You are assuming they used these assets for Principle's benefit.

NO! NO1 NO! Repeatedly I've told you what the standard is, and repeatedly I've told you that they used these assets for the FUNDS purposes - and perhaps lost money. The latter does NOT lead to the conclusion that there was a breach of the former.
Print the post Back To Top
No. of Recommendations: 0
"here is a link to one of the foreclosures in Florida"

TOTALLY irrelevant. Prudent fund managers of real estate portfolios ROUTINELY allow properties in the fund to be foreclosed on - IF the value of the property is LESS than the mortgage balance. Less loss that way.

Nothing to see here. Move on.
Print the post Back To Top
No. of Recommendations: 0
"I can't close tonight without another prudent investment by Principal."

Selective facts prove NOTHING. Did Principal hold the mortgage? If so, purchasing the property outright would have reduced the amount of the loss (and it was a 67% "writedown" - not a 300% "loss."

The value (book value") has NOTHING to do with market value. There is this thing known as "depreciation" that reduces the value. They may have an acquired basis in the property lower than purchase price for a variety of reasons.

Did the property complete a "block" that Principle also owned? They may have paid a premium to get the "whole" and then sell the "whole" for a profit.

See? I can speculate with facts too....
Print the post Back To Top
No. of Recommendations: 0
The problem throughout this thread is that you have NEVER articulated WHAT OTHER EXPERTS in the field of managing real estate funds of this type did, or would have done, under the same or similar circumstances.

Iowa Code 508a clearly states that

BASIC REQUIREMENTS.
A domestic life insurance company organized under chapter 508 may
establish one or more separate accounts, and may allocate to such
accounts amounts, including without limitation proceeds applied under
optional modes of settlement or under dividend options, to provide
for life insurance or annuities, and benefits incidental to such life
insurance or annuities, payable in fixed or variable amounts or both, and may hold and accumulate funds pursuant to funding agreements, subject to the following:

6. No sale, exchange or other transfer of assets may be made by
such company between any of its separate accounts or between any
other investment account and one or more of its separate accounts
unless, in case of a transfer into a separate account, such transfer
is made solely to establish the account or to support the operation
of the contracts with respect to the separate account to which the
transfer is made, and unless such transfer, whether into or from a
separate account...


In the Henderson Lofts matter, Principal was engaged in a separate partnership agreement which included the loan purchase agreement, with a joint venture partner at the time the debt instrument was purchased.

Their actions violated State regulations.
Print the post Back To Top
No. of Recommendations: 0
"Their actions violated State regulations"

Apparently YOU seem to have more knowledge than the plaintiffs in many law suits, the Iowa and other state regulators, the DOL, and your plan fiduciaries.

Sorry, but I don't buy it.

And besides, you've been arguing a "breach of fiduciary duty" under ERISA - and YET - you have provided no evidence of the actions of "prudent" ERISA fiduciaries - and whether Principle's actions were inconsistent with that standard.

No offense - but you are bitter. You lost money. You are lashing out to blame someone.

The only blame to be had is towards those who created a bubble economy and those who participated in the bubble economy (including you and me).

As far as I'm concerned, there is nothing left to discuss in this thread....
Print the post Back To Top
No. of Recommendations: 0
Principle MADE INVESTMENTS with the assets of the fund. Some of those investments entailed purchasing real estate, and some entailed purchasing other instruments that were consistent with the objectives of the fund. Investing in debt (i.e. providing mortgage financing) to developers is a legitimate investment.

Your statement is misleading... a loan purchase agreement involves paying off loan proceeds, NOT Investing in debt (i.e. providing mortgage financing) Investing in debt entails a return in the form of mortgage interest, or buying debt at a discount, and hoping the borrower will pay off the mortgage.

A Loan Purchase Agreement has no "return" for the investor, in this case the PUSPSA, because there is no investment. We were simply paying off loans paid to shell companies with no assets, committed by Principal as part of a debt/equity financing agreement with developers.

As far as "imprudent" investments, Principal's actions speak volumes, yet to be uncovered.
Print the post Back To Top
No. of Recommendations: 0
As far as I'm concerned, there is nothing left to discuss in this thread....

mjolah,

I appreciate your comments concerning the issue of due diligence, and matters relating to Principal and their activities as service providers for the PUSPSA.

You have provided a much needed perspective from which most average 401k investors can benefit. While your comment on Principal's version of "fixed income" was a bit of a reach, your talking points are noted.

Reform is needed... the defined benefit plan protocol provides much needed protection for the investor, while the defined contribution plan leaves opportunities for abuse. There should be a "middle ground" where the investor can benefit with more security and less opportunity for fraud and abuse.

I also realize the DOL is stressed for resources which limits their enforcement capabilities, but perhaps with the combined efforts of the regulators and the fiduciary experts like yourself, a solution can be reached.

Good Day, Sir...

Dennis
Print the post Back To Top
No. of Recommendations: 0
"I also realize the DOL is stressed for resources which limits their enforcement capabilities,"

Not at all. When I started in this business in 1985, the DOL had 40 investigators for all ERISA plans.

Now, they have over 3,500 and the number of plans they investigate is about half what it was in 1985.

I work with them at least weekly. They know what they are doing, and they do it well.
Print the post Back To Top
No. of Recommendations: 0
"A Loan Purchase Agreement has no "return" for the investor, in this case the PUSPSA, because there is no investment. We were simply paying off loans paid to shell companies with no assets, committed by Principal as part of a debt/equity financing agreement with developers."


NO! A loan purchase agreement places the purchaser (Principle) in the position of the original lender - i.e. they now have an asset secured by collateral. The debt may actually produce income. The collateral may produce income. And foreclosure on the collateral may produce gain.

It IS an investment - otherwise it is nothing more than a gift - and I assure you, Principle did no such thing.

"As far as "imprudent" investments, Principal's actions speak volumes, yet to be uncovered."

And that is a conclusion YOU are drawing, not supported by the evidence, and not measured by the standard (of what OTHER experts were, or would have done in similar circumstances).
Print the post Back To Top
No. of Recommendations: 0
It IS an investment - otherwise it is nothing more than a gift - and I assure you, Principle did no such thing.

The loan was for $13.3 million, the land value at the time of the loan was about $3.3 million. The land was not developed, yet Principal sued for only their partner's share of the land value, about $1.5 million.

So where is the other $10 million (equity portion of the debt/equity package the account guaranteed), and why would Principal not include the equity value of the loan in the lawsuit?

MJOlah, I don't expect you to answer the above, since the answer would be a discovery question, and you would not speculate on specifics.

The generality of your answers have been helpful in forming conclusions that define compliance with ERISA, but facts determine the outcome at trial. If a jury hears evidence to support an allegation of money laundering, your theory of compliance turns to dust, and for that reason, I am surprised you made a conclusive comment about what Principle (aka Principal) did or do not do.
Print the post Back To Top
No. of Recommendations: 2
The generality of your answers have been helpful in forming conclusions that define compliance with ERISA, but facts determine the outcome at trial. If a jury hears evidence to support an allegation of money laundering, your theory of compliance turns to dust, and for that reason, I am surprised you made a conclusive comment about what Principle (aka Principal) did or do not do.

If you ever even get to trial. Thus far, you have had a class action denied and the DOL has declined to prosecute. Yes - I get that you are accusing everyone and everything having to do with those decisions with bowing to political pressure. But the fact remains, there hasn't been an allegation against Principal successfully brought to trial.

Then you say you opted out of a settlement offer. So, at this point, you are left to sue on your own, which, I suspect, is going to be very expensive, if you even have the right to sue now - more than 7 years later. So, it still remains to be seen if you will be able to even get to trial, much less, prevail at trial.

AJ
Print the post Back To Top
No. of Recommendations: 0
"...but facts determine the outcome at trial."

Actually, the LAW, as applied to the facts determine the outcome.

The question is STILL one of "prudence" as defined by what other EXPERTS at managing a similar fund under similar circumstances would have done.

Apparently, based on the outcomes of the litigation thus far, they would have done the same thing....
Print the post Back To Top
No. of Recommendations: 0
"... If a jury hears evidence to support an allegation of money laundering, your theory of compliance turns to dust"

NO! Because "evidence of" is NOT conclusive as to the allegations. There will of course be evidence "against" and a jury will have to weight the evidence (if a judge even lets it get to that point).

You seem to think that ONE-SIDED FACTS SELECTIVELY PICKED from all of hte facts and circumstances is sufficient to hand Principal.

So far, no one has been able to show that a breach or crime has occured - leading me to believe no wrong doing existed. The courts thus far have shown that to be the case. Trust me, there are plenty of "plaintiff's lawyers" who would give their right arm to take on and win against Principal - IF IT WERE WORTH THEIR TIME.

I base my conclusions about Principal based on 1) my understanding of ALL of the facts; and 2) the fact that every case against them with respect to this fund and facts has proven fruitless.

If you think you have a case - go for it. Try to get Jerry Schlicter to take your case. He's been at the forefront of ERISA litigation lately... (and trust me - he's already looked into it...)
Print the post Back To Top
No. of Recommendations: 0
If you think you have a case - go for it. Try to get Jerry Schlicter to take your case. He's been at the forefront of ERISA litigation lately... (and trust me - he's already looked into it...)

Might just have to give him a call.... check this link out... do you recognize Henderson Lofts Devco Llc??

http://www.homefacts.com/environmentalhazards/Nevada/Clark-C...

Meanwhile, I am putting together information on Vested Housing Group and Andrew Miller, Principal's partner in this venture, that will blow your mind...

Dennis
Print the post Back To Top
No. of Recommendations: 0
http://www.homefacts.com/environmentalhazards/Nevada/Clark-C...

Looks like our $13.3 million piece of prime property along a bunch of railroad tracks in Henderson, NV was used as a hazardous waste dump site. The report states there were hundreds of piles of TPH contaminated soil dumped there, and was still there when we purchased the property in July, 2007.
---------------------------------------------------------------
H-000634
Clark
Pacific Crossroads Center , APN 178-15-213-015 Henderson Lofts Devco, LLC
1200 Wigwam Parkway
Henderson      89074
07/13/2007
09/05/2007
TPH
Hundreds of piles of soil dumped illegally at this property.
----------------------------------------------------------------
https://ndep.nv.gov/bca/file/closed_cases_snapshot.htm

http://www.fiduciaryfactor.com/wp-content/uploads/2015/05/He...


I had identified another piece of worthless, unbuildable land in Ft Lauderdale, FL we paid $15 million for during the same time span, but this one wins by a mile.

Dennis
Print the post Back To Top
No. of Recommendations: 0
So far, no one has been able to show that a breach or crime has occured - leading me to believe no wrong doing existed.

I think that "fact" just changed....
Print the post Back To Top
No. of Recommendations: 0
So far, no one has been able to show that a breach or crime has occured - leading me to believe no wrong doing existed. The courts thus far have shown that to be the case. Trust me, there are plenty of "plaintiff's lawyers" who would give their right arm to take on and win against Principal - IF IT WERE WORTH THEIR TIME.

mjolah,

Since you have made it clear in this post that YOU are the expert and I KNOW NOTHING about legal issues, compliance, or evidence, I expect you will report this matter involving HENDERSON LOFTS DEVCO, LLC, IF you so deem it to be a criminal or reportable act of any consequence, to the proper legal and/or regulatory authorities for review.

Thank You,

Dennis Myhre, AIC
Print the post Back To Top
No. of Recommendations: 0
You just don't get it. Just because Principal engaged in transactions that lost money, or on the face appear to have been "imprudent" - a "crime" requires a specific intent, and a breach of a fiduciary duty requires a comparison to what OTHER EXPERTS were, or would have done in the same or similar circumstances.

You've shown lots of "alleged" facts that are already publicly known, which others have already vetted, and have NOT pursued.

Why?

Because no one has been able to demonstrate anything other than Principal lost some money on transactions that in hind sight may have seemed inappropriate.

But guess what? Without that "specific intent" (in the law, we call it "mens rea" - latin for "state of mind") or shown that OTHER EXPERTS would have done anything different.

Screem to whomever you'd like to about it - it's your nickle.

Jerry Schlichter has already looked into it and it wasn't worth his time because there isn't anything there.
Print the post Back To Top
No. of Recommendations: 0
Oh, and by the way - with respect to the "toxic waste dump" - not at all uncommon. Indeed, my mother owned a building she used for an antique store. It was a former gas station in the 1930s - and a "level one" assessment found an in-ground tank. "It" happens.
Print the post Back To Top
No. of Recommendations: 0
You've shown lots of "alleged" facts that are already publicly known, which others have already vetted, and have NOT pursued.

I was hoping you would say that.... committing the account to pay off a loan to a shell Company in which the "sole member" as developer provided false information when he filed corporation papers, including a physical address that doesn't exist, and which had been in business only a couple weeks when Principal guaranteed a loan to a shell company that was an illegal hazardous waste dump site with "hundreds" of piles of contaminated soil is pretty convincing that the facts are not "alleged."

We'll see with the Nevada State Attorney General's office thinks, thank you.
Print the post Back To Top
No. of Recommendations: 0
In case anyone else is STILL following this post, this is fascinating stuff...

We have a leading service provider of 401k retirement plans who uses your 401k money to purchase a $13 million dollar bank loan where a shell company with no assets buys an illegal hazardous waste dump site with the loan proceeds, then defaults on the loan!

The shell company with no assets WOULD default on the loan, of course... it has NO ASSETS!

The investor's are forced to buy the defaulted loan, BUT NOT TO WORRY! We get to keep the hazardous waste dump site which we paid to clean up! Of course, no-one will want to build on or PURCHASE vacant land that was a dump site!

And our regulators and protectors cannot prove any regulations or laws are violated because they don't know what another expert prudent investment manager would have done under a similar situation.

Under their theory, IF you rob a bank, and the cops can't prove that another "expert, prudent bank robber" wouldn't have done the same thing, there will be no arrest!

And who says the system isn't BROKEN??
Print the post Back To Top
No. of Recommendations: 0
Screem to whomever you'd like to about it - it's your nickle.

I believe it is "scream" and "nickel."
Print the post Back To Top
No. of Recommendations: 0
"committing the account to pay off a loan to a shell Company in which the "sole member" as developer provided false information"

Conclusions - not proven....
Print the post Back To Top
No. of Recommendations: 1
"I believe it is "scream" and "nickel." "

Finally! Something you have said that is PROVABLY accurate.
Print the post Back To Top
No. of Recommendations: 0
"committing the account to pay off a loan to a shell Company in which the "sole member" as developer provided false information"

Conclusions - not proven....


I have the proof...but I'm sure your answer would have something to do with what the expert and prudent felon would do in the same situation.
Print the post Back To Top
No. of Recommendations: 0
"would have something to do with what the expert and prudent felon would do in the same situation."

You just destroyed any semblance of credibility you may have had with that one phrase.

You show a total disregard for our system of justice, the Constitutional protections afforded the accused, and your ability to understand the STANDARDS by which we judge people and their actions.

Yes, my reply would be WHERE DID PRINCIPAL DIFFER FROM THE STANDARD ERISA IMPOSES ON FIDUCIARIES.

You claim to have "proof" but all you do is provide (selective) facts that don't necessarily support your conclusions....
Print the post Back To Top
No. of Recommendations: 0
"committing the account to pay off a loan to a shell Company in which the "sole member" as developer provided false information"

Conclusions - not proven....


Submitting false information on Articles of Organization is a class 2 felony in Nevada and Arizona. The Articles of Organization for Henderson Lofts Devco, LLC is listed as 3649 North 51st Place, Phoenix, AZ 85018. According to Maricopa Property Tax records, that address does not exist. This same address was reported as a known Place of Address by the Statutory Agent filed on June 19, 2007. The public notice was published in the Gila Bend Sun newspaper, with a circulation of under 2000 subscribers. The same address was also used in the loan documents on page 10 as a mailing address by Vested Housing Group, as well as other court documents. No website exists.

Principal issued this press release stating they partnered with Vested Housing Group on or about July 3, 2007:
http://www.businesswire.com/news/home/20070703005367/en/Prin...

The loan Purchase Agreement was dated July 2, 2007.

The same fictitious mailing address was used in Nevada and Arizona, and obviously, the sole members did NOT want Henderson Lofts Devco, LLC to be uncovered. If convicted, there is a mandatory jail/prison term.

In review, Principal Real Estate Investors partnered with a possible felon whose business has no physical address, to purchase land near Las Vegas that was at the time a known hazardous waste dump site by the Nevada Division of Environmental Protection, using over $13 million dollars from a 401k investment fund.

This certainly appears to be a violation of the Federal Conspiracy Law. Interestingly, the Assistant U.S. Attorney in Las Vegas is Steve Myhre. The neat thing about this issue is that under the Federal Conspiracy Law, the 5 year Statute of Limitations does not begin to run until the last overt act, which would have likely been the Trustee's Deed of Sale recorded in Nevada on August 11, 2009.

This may be the time for you to report this matter to the Ohio State Insurance Commissioners office, and for me to visit family in Las Vegas. And IF you use the "prudent expert investment" defense again, I WILL puke!
Print the post Back To Top
No. of Recommendations: 0
Completely "one-sided" recitation of the facts - NOT APPLIED TO THE STANDARD.

You understand that in our system of justice, in a civil suit the OTHER SIDE gets to present evidence too? Right?
Print the post Back To Top
No. of Recommendations: 0
You understand that in our system of justice, in a civil suit the OTHER SIDE gets to present evidence too? Right?

Who cares.... this will be a criminal action, and yes, there will be a defense.
Print the post Back To Top
No. of Recommendations: 0
or is it "defence?"
Print the post Back To Top
No. of Recommendations: 0
You show a total disregard for our system of justice, the Constitutional protections afforded the accused, and your ability to understand the STANDARDS by which we judge people and their actions.

You know what, you're right, and I will apologize to Larry Zimpleman, CEO of Principal Financial Group, when I see him and other Principal executives in a federal court on charges of Conspiracy...
Print the post Back To Top
No. of Recommendations: 0
You just destroyed any semblance of credibility you may have had with that one phrase. You show a total disregard for our system of justice,

And I wish you would quit using those rude innuendos... let the readers decide for themselves. This is NOT a win or lose discussion. Are you defending the system, or Principal Financial Group...
Print the post Back To Top
No. of Recommendations: 3
And I wish you would quit using those rude innuendos... let the readers decide for themselves. This is NOT a win or lose discussion.

Well, you certainly seem to be treating it as a win or lose discussion. And

And, as already mentioned, you seem to be intent on trying Principal here, although I'm not sure what the point of that is. If you have evidence - take it to court. It's not going to be decided here.

You have amply demonstrated your initial premise that you did not do proper due diligence before you made your investment. Hopefully, other readers will understand that they need to understand what they are investing in. Other than that, what point are you trying to make, and to what end?

AJ
Print the post Back To Top
No. of Recommendations: 0
"Who cares.... this will be a criminal action, and yes, there will be a defense."

I care - because I believe in full and FAIR discourse - this is an EDUCATIONAL website and the information provided should be accurate AND complete. One does not learn from ONE side of the story - it is merely sour grapes.
Print the post Back To Top
No. of Recommendations: 0
"And I wish you would quit using those rude innuendos... let the readers decide for themselves. This is NOT a win or lose discussion. Are you defending the system, or Principal Financial Group."

Rude innuendo? First, you are calling into question the integrity of everyone who works at Principal - and you are doing it with one-sidedness that is intentionally deceptive - and inaccurate. I can think of nothing more rude that unsupported accusations, and the TOTAL unwillingness to actually provide that which would make the scenario complete - THE STANDARD BY WHICH YOU THINK PRINCIPAL SHOULD BE JUDGED (yes, what OTHER EXPERTS DID UNDER THE SAME OR SIMILAR CIRCUMSTANCES).

You want the readers to decide, and yet you are insistent on unfairly presenting a skewed set of facts that ABSENT A COMPARISON TO THE STANDARD APPLICABLE IN ERISA CASES is misleading at best, and deliberately biased - and I find that repugnant (and that's not an innuendo - but an indictment).

I am defending BOTH the system and Principal - as thus far, I've seen nothing to warrant a conclusion of criminality nor breach of fiduciary duty, People HAVE sued - and lost. TONS of lawyers have looked into every nook and cranny of the fund in question and have found nothing.

The best you have to offer is that the system is corrupt and bought off - and yet you HAVE NO PROOF OF THAT OTHER THAN THE RESULTS HAVE BEEN AGAINST YOU. That's just ridiculous. Maybe, you are WRONG....
Print the post Back To Top
No. of Recommendations: 0
you are calling into question the integrity of everyone who works at Principal
The best you have to offer is that the system is corrupt and bought off

THE ABOVE STATEMENTS ARE NOT TRUE.

THE STANDARD BY WHICH YOU THINK PRINCIPAL SHOULD BE JUDGED (yes, what OTHER EXPERTS DID UNDER THE SAME OR SIMILAR CIRCUMSTANCES).

I suggest it would be difficult to find another "expert" that used 401k funds to purchase a contaminated waste site. If you find one, let me know.

ABSENT A COMPARISON TO THE STANDARD APPLICABLE IN ERISA CASES

I tried to Google ERISA Standards relating to purchasing hazardous waste dump sites with 401k funds and couldn't find any standards applicable. Perhaps we are breaking "new ground...."

unfairly presenting a skewed set of facts

For transparency, I will ask Principal Compliance to respond.

TONS of lawyers have looked into every nook and cranny of the fund in question and have found nothing.

It sounds to me like "TONS" of other people feel as I do.....
Print the post Back To Top
No. of Recommendations: 0
If you have evidence - take it to court. It's not going to be decided here.

AJ,

Your comment is the most sensible statement made in this Post, including mine. I intend to involve the U.S. Attorney's office in Las Vegas, and you are correct, If I have evidence (which I have) I should take it to court (which I will do also), and NOT display it on this Posting.

I appreciate your input, and while somewhat harsh towards my approach, I think you demonstrate what a strong investor should emulate.

I mainly like to continue comments on this Post because Google picks up on the posts and includes them in search engines for others to see, ie., sends more readers to this posting...
Print the post Back To Top