Tort law and breach of fiduciary duty
While many people understand that they may be can take legal action if they are injured due to the negligent or reckless actions of another person, they often do not know what exactly a “tort” is and how it applies to civil law. A “tort” is a legal wrong, and persons who suffer injury caused by someone else may be able to pursue compensation from the person or persons responsible through a civil lawsuit. In order to prove a personal injury case in court, the plaintiff’s attorneys will typically need to prove that the four essential elements of a tort are present.
In a personal injury case, the four basic elements of a tort include:
- Demonstrating that the defendant had a duty to observe or protect the safety of the plaintiff.
- The defendant breached that duty and endangered the health and safety of the plaintiff.
- The plaintiff suffered injury in some form.
- The plaintiff’s injuries were caused by the negligence of the defendant.
In cases involving 401k losses, the plaintiff often ignores their rights under tort law and pursue damages under ERISA law, a statute that supposedly protects retirement investors from financial predators like Principal Financial Services, Inc. The belief is that your case has standing under ERISA against plan providers, when the opposite is true. Because you are invested not a shares of plan assets, but rather in “units” of a separate account that is not considered a legal entity under the law, Principal’s defense is that common law applies to their duties as a service provider, and not ERISA. In other words, Principal has successfully prevailed in court arguing that they are not a fiduciary, and that only common law applies.
Common law is the system of law which is based on judges’ decisions and on custom rather than on written laws. When your case is heard by a Judge, he will rule based on precedence and not on statutory law. If you expect to win a lawsuit involving Principal Life Insurance Company, for example, you will have to establish damages based on negligence and breach of a duty owed, which is rooted in tort law.
One approach to tackle the common law issue is to use the argument that Principal had a duty owed, and that they breached that duty. Fiduciary responsibilities may not be a perfect fit to argue a breach of a duty owed, but endangerment and failure to protect the financial health and safety of the plaintiff is arguable. Adopting loyalty as the central focus illuminates the nature and range of remedies available for breach of fiduciary duty. Fiduciary implies a statutory responsibility, where endangerment involves a breach of a tort. Providing evidence that supports endangerment can include a comparison test of identical elements with dramatically different outcomes.
The remedial implications of the fact that many actors subject to fiduciary duties are themselves corporations or other organizations that necessarily must take action through individual agents of their own. Underlying these implications are principles derived from tort law, from agency law, and from principles of restitution. The robustness of the remedial response to breach of fiduciary duty reflects the complexity of loyalty’s demands and the legal response to disloyalty.
To demonstrate, I have below a comparison of two reasonably similar 401k retirement plans with significantly different outcomes. The common factor is that Principal Life, in one case, has a higher standard of duty to perform, and in the other case, that duty is diminished by statutory law, but not necessarily common law.
Hy Vee Food Store’s corporate office center is located in West Des Moines, Iowa. A few miles east, Principal Financial Services, Inc., resides corporately in Des Moines, Iowa. Both legal entities have retirement savings plans with Principal Life as a Plan Provider, both have a large number of employees, and both have large balances in their 401k plans. Plan offerings are similar, and in some cases, identical. The only difference is that in one case, Principal is a fiduciary, and in the other example, they are not. Both plans are “self-directed,” meaning that the employees can choose which investments to use to grow their retirement income.
With all these similarities, including a large sampling, one could reasonably presume the statistical probability that these two plans would have similar outcomes for the investors. Yet, the Principal Plan has a rating of 81 points, while the Hy Vee plan is rated at 51 points. This means the average Hy Vee investor has lost savings of $251,359, while the Principal investor has lost only $85,511 in savings by using Principal Life Insurance Company.
In fact, most Principal 401k investors rank below 50 points as compared to 81 points for their own employees. Given the statistical probabilities, one could argue the only variable factor is the company itself, and that there exists a conditional probability that it is Principal’s actions that caused injury to the investor’s retirement savings.
The following images illustrate Hy Vee’s 401k Plan for their employees:
Below are corresponding images to illustrate Principal’s Saving Plan for their employees:
Comparing the two plans, it is readily apparent the Principal Select Savings Plan is by far the more productive and profitable plan of the two. And yet, they are virtually identical in composition and investment opportunities.
Principal can argue they have only a fiduciary responsibility to choose skilled sub-advisers, but something else is going on behind the scenes. Principal is able to manipulate the separate account payouts in a way to steal hundreds of millions of dollars from unsuspecting investors. That is the only logical conclusion to reach after analyzing the two retirement accounts. If we analyze hundreds of other Principal sponsored plans, we would reach the same conclusion… the U.S. Department of Justice needs to become involved and stop this mass slaughter of retirees accounts by this unscrupulous financial institution.
Litigation pleaded on statutory law will not stop Principal…. the court must be shown that Principal is violating a fiduciary standard under common law involving a tort violation in an agency/principal relationship. The products sold by Principal will simply not have standing under a statutory definition. We need a class action filed on behalf of ALL Principal sponsored 401k plans to aggressively pursue this cause of action.
In coming weeks we will review in detail other plans, and I guarantee you will draw the same conclusions from those plans as well. Pull up your own 401k plan on BrightScope.com and see for yourselves. The money Principal is stealing from you will pay off the mortgage on your retirement home. This is important information, and as you follow future blog posts, the same theme will repeat itself. Principal must be stopped for the 401k program to survive, and thrive, in 2018.