Class Action Accuses Principal of Self-Dealing in Target Date Retirement Funds

Why It Matters

If the allegations hold, sponsors could face higher costs and fiduciaries may be liable for breaching their duty of care, prompting tighter scrutiny of proprietary fund selections across the retirement‑plan market.

Key Takeaways

• Principal’s target‑date funds charge up to 0.13% fees, far above 0.02% peers
• Index products show higher tracking errors, lagging returns 2018‑2024
• Record‑keeping fees $80‑$94 per participant, double industry norm
• Fiduciaries allegedly steered billions into higher‑cost proprietary funds
• Case underscores legal risk for sponsors relying on proprietary retirement products

Pulse Analysis

Target‑date funds have become the backbone of many defined‑contribution plans, offering a one‑stop solution that automatically rebalances assets as participants age. Yet the convenience can mask hidden costs, especially when plan sponsors rely on proprietary products that may not be the cheapest option. Industry benchmarks typically see expense ratios near 0.02% for passive S&P 500 exposures, but Principal’s own index offering reportedly charges 0.13%, a six‑fold premium that directly erodes participant returns over time.

The Oregon lawsuit brings those cost differentials into sharp focus, alleging that Principal’s fiduciaries deliberately funneled billions of dollars into higher‑fee mutual‑fund share classes and separate‑account annuities, even when lower‑cost alternatives existed. Beyond fees, the filing points to tracking‑error rates that are five to ten times higher than comparable benchmarks, suggesting that the funds not only cost more but also underperform. Adding to the grievance, the plan’s record‑keeping arm is accused of charging $80‑$94 per participant annually, a figure that dwarfs the $20‑$40 range cited by the NEPC 2025 survey. Such disparities raise red flags for plan sponsors tasked with meeting fiduciary standards under ERISA.

The broader implication is a heightened regulatory spotlight on self‑dealing and fee transparency in the retirement‑plan industry. As courts and regulators increasingly scrutinize proprietary‑product conflicts, sponsors may need to adopt more rigorous vendor‑selection processes, benchmark fees regularly, and document the rationale for any proprietary allocations. Doing so not only mitigates legal risk but also aligns plan outcomes with participants’ best interests, reinforcing trust in the retirement system.