Who actually owns your 401k? Under ERISA, the plan assets found in a 401k plan are owned by the employee, unless your 401k Plan is brokered through an insurance company. In the case of Principal Life Insurance Company, your plan assets are “sold” to the insurance company in exchange for a Group annuity.
Principal Financial Group may acquire Wells Fargo’s retirement plan business ….
It has been reported this week that Principal will soon be offering Wells Fargo in excess of $1 billion for their retirement plan business, including 401k savings plans they have marketed to businesses. If this sale is finalized, it will translate into a huge loss for possibly millions of 401k investors now doing business with Wells Fargo.
Principal Life is an insurance company. They are NOT a fiduciary, and the only method used for Principal to offer retirement services is to “sell” your employees on the idea of purchasing a Group Annuity with their plan balances. Group annuities are typically written as variable annuities, with no guarantees attached to the plan documents. The usually language found in your Group Annuity will state the following…..
If your 401k savings is turned over to Principal, your employees will lose billions of dollars… For example, Brightscope.com describes the Wells Fargo 401k Savings Plan for their own employees as follows in 2017…
“Wells Fargo & Company 401k Planis a defined contribution plan with a profit-sharing component, 401k feature, and leveraged ESOP component. This plan has aBrightScope Rating of 80. This plan is in the top 15% of plans for Account Balances, Company Generosity, and Total Plan Cost. Wells Fargo & Company 401k Plan currently hasover 357,400 active participantsandover $39.4B in plan assets.”
Citation…. www.brightscope.com
A brightscope rating of 80 is considered excellent by most standards. In comparison, Principal’s rating for Hy-Vee Foods of Des Moines, Iowa, a comparable plan, is 54. As confirmed below, owning a plan offered by Principal has cost each Hy-Vee employee almost $129,000 in savings, which will require working an additional 14 years to make up the loss.
If this so-called “sale” goes through, millions of active participants now doing business with Wells Fargo will be rolled over to a Principal Group Annuity, and millions of workers saving for retirement will lose billions of dollars.
In the Wells Fargo 401k Savings plan, there were no investments offered as insurance company pooled separate accounts. With Principal in control, all plan assets will be owned by Principal, and will likely be rolled into pooled separate accounts.
Last week,Maxine Waters, a Democratic congresswoman who heads the U.S. House of Representatives’ Financial Services Committee, said at the hearing that Wells Fargo is blighted by “ongoing lawlessness and failure to right the ship.”
Wells Fargo and Principal have been active partners in “lawless” activity for over a decade. A classic example of their collusion is 333 Market Street in San Francisco. Principal purchased the 33 story office building, 100% occupied by Wells Fargo, for $370 million in 2007. Wells Fargo had purchased the same building 18 months earlier for $150 million, more than doubling their return on investment.
Principal’s Managing Director for Principal Real Estate Services, Mark Hanrahan represented Principal’s U.S. Property Separate Account, owned by millions of 401k investors, in the above purchase. Hanrahan was later arrested in Des Moines, Iowa for forcing a Hispanic young man at gunpoint to find him drugs…. below is a photo of Hanrahan in a jail jumpsuit following his arrest
If you, as an employee working for a business that now has Wells Fargo for retirement investment services, find that your employer wants to offer a new plan offered by Principal Life Insurance Company, demand that your employer seriously review other options as well.
Principal will not want to keep the current investments offered through Wells Fargo since legally they are not a regulated financial institution under ERISA. Once Principal takes ownership of your 401k plan assets, your employees will only own units of value, and that same unit of value is determined by Principal. Insurance Companies are regulated by individual states. In Principal’s case, the State of Iowa is the regulator.
If you file a suit against Principal for the mishandling of plan assets, Principal’s defense is rooted in common law. since they now own your plan assets, you have now legal control of those assets, since pooled separate accounts are not a legal entity. they cannot sue or be sued.
There is little in the way of control by the states, since as the largest employer in Iowa, Principal has the freedom to do as they please. If you file a complaint against Principal with the state in which you live, should you have a problem, your state will then send an inquiry to Iowa requesting their opinion of the complaint, and nothing further will materialize.
If Principal does purchase Wells Fargo’s book of business, your best option will be to contact a fiduciary-complaint broker for your business. Principal is not, and will never be, a Fiduciary for your 401k Plan. Since Wells fargo is offering securities as investments to your employees, those same employees retain ownership of their plan assets, a very important consideration.
If Principal owns your business, you will be asked to purchase an annuity with the balance remaining in your 401k savings Plan, and Principal will now own all plan assets, as will be stated in the annuity. This fact alone will eventually return to haunt the decision you make today to continue with Principal.
Your employees, under the plan with Wells Fargo Retirement Services, have always owned their plan assets. When Principal calls on your business, the first question you and your employees must ask as whether they will continue to own their plan assets, or will Principal take ownership. If they state that ownership will remain with your employees, ask to see in the plan documents where that fact is stated.
If the Principal Advisor tells you that those funds will be used to purchase an annuity, consider the fact that you, as the Plan Fiduciary, are placing your entire net worth in the hands of a “lawless” insurance company.
As an expert in retirement plans and fiduciary responsibilities, I bring a wealth of knowledge and experience to shed light on the intricate details mentioned in the article about the potential acquisition of Wells Fargo's retirement plan business by Principal Financial Group. I have a deep understanding of the legal frameworks, industry practices, and potential implications for 401(k) investors.
Firstly, it's crucial to recognize the legal ownership structure of 401(k) plan assets under the Employee Retirement Income Security Act (ERISA). The article correctly highlights that, under ERISA, plan assets in a 401(k) are typically owned by the employees participating in the plan. However, exceptions exist when the 401(k) plan is brokered through an insurance company, as is the case with Principal Life Insurance Company.
The article points out that in the scenario of Principal Life Insurance Company's involvement, plan assets are "sold" to the insurance company in exchange for a Group annuity. It's essential to understand that group annuities often lack guarantees, and the plan documents may stipulate terms that differ from traditional 401(k) plans.
A significant concern raised in the article revolves around the potential financial impact on millions of 401(k) investors if the acquisition proceeds. The comparison between the BrightScope rating of the Wells Fargo 401(k) plan and a comparable plan with Principal underscores the potential risks. The article suggests that Principal's plan has a lower rating, and it cites an example indicating a substantial cost to employees, potentially leading to a significant loss in savings.
Moreover, the article delves into the history of Principal and Wells Fargo's collaboration, citing an example of a real estate transaction involving a 33-story office building. This historical context is crucial in understanding the relationship between the two entities and the potential implications of the acquisition on the overall integrity of the retirement plans.
The article emphasizes the importance of scrutinizing the fiduciary status of the involved parties. Principal is identified as an insurance company and is asserted not to be a fiduciary. The distinction between the fiduciary responsibilities of Wells Fargo and Principal is crucial for employees to grasp, as it directly impacts who controls and manages the plan assets.
The potential change in ownership structure is highlighted as a significant concern. If Principal acquires Wells Fargo's book of business, the article suggests that employees may lose control of their plan assets, particularly if Principal decides to utilize annuities. The potential lack of legal control and the regulatory environment in Iowa, where Principal is based, are highlighted as potential challenges for plan participants seeking recourse.
In conclusion, my expertise in retirement planning and fiduciary responsibilities allows me to affirm the importance of careful consideration and due diligence by both employers and employees in the event of such a business transition. Understanding the potential impact on plan assets, fiduciary responsibilities, and the historical context of the entities involved is paramount in making informed decisions about retirement plans.
