The truth about ERISA regulation and your 401(k)…
Regulators were shocked a few years back when the financial crisis of 2008 hit investors hard…. they discovered financial institutions had been lying to investors, stealing their money to cover their losses, and violating every law on the books to the tune of trillions of dollars loss for investors. ERISA regulation had failed.
The Department of Labor needed to take immediate action, and they did. They combined forces with industry leaders to draft new laws and regulations to assure protections for those that the DOL believed needed their protection the most. One key element in their decision making was to reach out to Fiduciaries of 401(k) plans, who were being bombarded with lawsuits by employees, accusing the Plan Administrators of breaching their fiduciary duty. After all, it was the Plan Administrators that recommended these defrauded investments offered by plan service providers like Principal Life Insurance Company.
The Department of Labor and the Securities and Exchange Commission both sought answers to re-mediate the problem, by asking advice from the very same financial institutions that created the problem. The prevailing question was, “How can we enforce regulations so this will not happen again?” So you as plan service providers cannot place the Plan Administrators in a position of liability caused by a fiduciary breach of their duties.
The response was unanimous…. the solution reached by the Department of Labor was to write an amendment to the regulations that would exempt Plan Administrators from Fiduciary Liability when they are lied to by the service providers!! In other words, your Plan Administrator provides you with information concerning your 401(k) plan that he was told by the service provider. You rely on that information, as your ONLY source of information, to make a decision concerning your retirement future. What follows are facts about ERISA regulation and your 401(k) plan…
Your insurance company service provider can lie to you with impunity…..
You discover information you were told by the Plan Administrator was a lie, a non-truth, that caused you to lose your entire retirement savings. The Department of Labor now has an amendment attached to the ERISA regulations that protects, not you, but your Plan Administrator, from a breach of fiduciary litigation, simply because that person relied upon Principal Life Insurance Company information that was a lie. If you really believe these so-called regulators have your best interest when regulating the 401(k) industry, you are BADLY mistaken!
Your insurance company service provider owns all of your plan assets, while you own nothing of legal value…
Under state regulations, in a 401(k) plan where you, the investor, is offered only insurance company separate accounts as an investment option, you actually own nothing of value. The separate accounts are not legal entities, and as such, offer only “units” of value in an investment that does not exist as a plan asset. This image illustrates the variable group annuity in which the separate accounts are wrapped as so called investments. Since Principal, in this case, owns all plan assets, they are not regulated by ERISA laws, but rather common law. Since the separate accounts of which you “own” units, are not considered legal entities under the law, you have no standing in court.
States regulate insurance companies, and the state in which the insurance company is domiciled regulates that company. Take for example, Principal Life… they are domiciled in the State of Iowa, and Iowa regulations control any issues that may arise. If you read the regulations for the State of Iowa, you will be shocked. The first thought that comes to mind is “who exactly are they regulating?” The laws define issues that limit not Principal Life, but rather gives them a wide berth of freedom in taking your money. For example, Iowa Code 508A stated the following abbreviated highlights in 2016:
…. The income, gains and losses, realized or unrealized, from assets allocated to a separate account shall be credited to or charged against the account, without regard to other income, gains or losses of the company…..
…. Amounts allocated to any separate account and accumulations thereon may be invested and reinvested without regard to any requirements or limitations prescribed by the laws of this state governing the investments of such life insurance companies….
…. Assets allocated to a separate account shall be valued at their market value on the date of valuation, or if there is no readily available market, then as provided under the terms of the contract or the rules or other written agreement applicable to such separate account….
…. Amounts allocated to a separate account in the exercise of the power granted by this chapter shall be owned by the company, and the company shall not be, nor hold itself out to be, a trustee with respect to such amounts….
….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…
…. To the extent such company deems it necessary to comply with any applicable federal or state laws, such company, with respect to any separate account, including without limitation any separate account which is a management investment company or a unit investment trust, may provide for persons having an interest therein appropriate voting and other rights and special procedures for the conduct of the business of such account….
…. If the assets of an insurer allocated to and accumulated in a separate account in connection with any policy, annuity, agreement, instrument, or contract, after the satisfaction of any liabilities with regard to the operation of the separate account, are insufficient to fully satisfy the insurer’s express obligations under the policy, annuity, agreement, instrument, or contract, then claims for the unsatisfied portions of the insurer’s obligations shall be class 2 claims….
Read, then reread, the above Iowa provisions to clearly understand their implications. Then, pick out several of my posts that clearly show that Principal violates most of these regulations with abandon… they used, for example, the separate accounts to guarantee loans to their affiliates… co-investors in billions of dollars worth of building projects that either went into default or were then sold to other developers at a substantial profit for Principal and their associates.
Principal also maintains a “piggy bank” valued in the hundreds of millions of dollars… money maintained in their general fund… money that is owned by 401(k) investors. The list grows every day, and you,the 401(k) investor, pays the cost of Principal’s activities with 50% or more of your retirement savings plan value.
The above realities are the tip of the proverbial iceberg when it comes to NOT protecting you, the investor, when you contribute you hard earned money to an unscrupulous Plan Provider of a 401(k) savings plan. This plan is NOT designed to help you save for retirement, but just the opposite. This post will describe briefly the fallacies and outright lies told by the financial institutions about investing in a 401(k) plan. For a more detailed explanation, you will have to dig deeper and curate the internet for more questions, and find answers to your concerns of investing in this program. The only sure bet for you as an investor is that with many of these plans, you WILL lose your retirement funds. Your BEST resource for information concerning which financial institution offers the best options can be had by subscribing to BrightScope.com. The service is free, and the information is accurate…. period. there is no other informational resource that can offer a comparable service.
What can be done to stop this abuse?
The laws must change at the state level… they are the regulators of insurance companies, and change starts there. Print a copy of the State law governing insurance companies in your state and show it to your state legislator…. don’t go to the State Insurance Commissioner… they are typically against change. If you live in Missouri and have a complaint against Principal, your insurance commissioner will refer that complaint to Iowa for resolution, which will never happen. You will then receive a letter from Iowa explaining that you must address your concerns with the state of Missouri. Principal does business in Missouri with the approval of the Missouri Insurance Commissioner. Tell your state Legislator you don’t want Principal doing business in Missouri. Put the issue on his shoulders to force compliance in the State of Missouri, since he is the one person that can force the matter.
Finally, be persistent. Demand change and be vocal about it… unless you as American workers take action for change, it will never happen. My generation of retirees lost 50% of our retirement because we did not know these issues existed. A decade later, those same issues continue to exist, and they must be addressed to prevent a re-occurrence of our generation’s loss. You are the only ones that can make it happen, and now is the time. With new leadership in Washington, it can happen. But it won’t unless YOU make it happen!!