Dennis Myhre and his wife had worked for the same company for over 25 years, both contributing the maximum amount into their 401(k) plans serviced by Principal Life Insurance Company. They were considered “employees at will,” and never earned a salary. When Pilot Catastrophe Services, Inc., needed their services as adjusters, and later in their careers as trainers, they would receive either a day rate or commissions on the claims they investigated.
Early in 2008, Myhre reviewed their investments and decided to change their allocations. Principal had re-defined the Principal U.S. Property Separate Account (PUSPSA) to a “fixed income” investment; considered a safe investment, the PUSPSA was rated second only to a money market account in terms of security. Principal’s excuse for re-defining the non-publicly traded real estate investment separate account was that it had produced consistent returns.
They would both turn 65 later that year, and the 401(k) plan underwritten as a variable annuity contract assured the Myhre’s they could continue to work after the age of 65 and still have full access to their benefits without a penalty for withdrawals. On September 26, 2008, the Principal Life Insurance Company announced a “withdrawal restriction” on the PUSPSA, in which investors could neither withdraw nor transfer their savings. The Myhre’s had planned to use some of their retirement funds when they turned 65 to pay off their home mortgage. Since they had no other retirement plan or pension available, they knew their Principal 401(k) plan would soon be needed and they would also have to continue working.
In December, 2008, when both had reached the age of 65, they decided to withdraw their savings, so Myhre contacted Principal to request a partial withdrawal. He was told the money they deposited with Principal was not their money. It was owned by Principal, and because the PUSPSA was frozen, no withdrawals could be processed. Unknown to the Myhre’s, Principal now “owned” all plan assets, including those funds deposited by the Myhre’s. There were exceptions for hardship cases, but despite their efforts to convince Principal they were unemployed at the time the account was frozen, Principal insisted that they were both salaried, and as such, neither of them were eligible to withdraw their retirement funds.
As the months passed, continued efforts to obtain their retirement savings from Principal were futile. Their account value plummeted by almost 50% by the end of 2009. Having lost half of their retirement savings in only 14 months, panic set in and Myhre turned to the Department of Labor for help. He was referred to a Mr. Joe Nelson, chief investigator for the Kansas City division of the DOL. He acknowledged that the DOL had an open investigation on the matter, and requested information that might be useful in his investigation.
After weeks of delay turned into months, Myhre began to research the account himself. What he learned was shocking… Principal had bought and sold commercial properties for the PUSPSA before and during the withdrawal restriction, depleting the cash reserves and forcing a sell-off of properties at huge losses to purchase troubled assets owned by Principal themselves, or to assume defaulted loans where Principal was the lender. Most transactions resulted in substantial net unrealized losses for the PUSPSA within a few weeks or months. He also discovered purchases involved commercial properties in which Principal had been an equity partner in the investment. Because of reduced demand, most of the developers failed to complete the construction phase, defaulting on the equity loans provided by Principal. Not only did Principal buy the properties for the account at grossly inflated prices, but also forced the PUSPSA to assume the existing loans!
Principal had also used the PUSPSA as collateral to obtain lender approvals from other lending institutions. When the loans defaulted, the PUSPSA had existing Loan Purchase Agreements, and was forced to purchase the defaulted loans, most of which had accrued interest during the life of the loan, and in which no payments were made by the borrower! The original funds loaned by the bank somehow vanished, most likely into the pockets of Principal and or their co-investor partners.
As Myhre’s investigation deepened, it became obvious that the key player in this conspiracy to defraud investors was Larry Zimpleman, now President and CEO of the company. It also soon became apparent that CFO Terry J. Lillis was a co-conspirator, along with several other key executives and board members. In February, 2010, Zimpleman, Lillis, and Jeffrey Hiller, Chief Compliance Officer at Principal Global Investors, met with then SEC chairwoman Mary Schapiro in her Washington, D.C. office. Efforts to obtain the discussion of that meeting under the Freedom of Information act failed… apparently no log exists, except for the calendar of appointments.
Finally, under threat their entire savings would be depleted, the Myhre’s both resigned their employee at will positions with Pilot Catastrophe Services, a requirement demanded by Principal before their funds could be withdrawn. No longer able to pay off their mortgage, their $350,000 home on a golf course in Branson, Missouri was listed for sale, and the Myhre’s moved into a small $60,000 home purchased at a Fannie Mae auction, a home in which they still live today.
Almost a decade later, at the age of 73, Myhre continues to uncover fraudulent activity involving the Principal Group of Companies and their affiliates over the past decade, and he plans to continue publishing his website, www.fiduciaryfactor.com to create an awareness for 401(k) investors of the systemic corruption in the 401(k) industry today.
- Financial Crimes and Compliance… October 17, 2017
- Retirement funds, a potpourri of conflicted risks October 16, 2017
- Principal’s missing plans…. where’s the money? August 30, 2017
- Antitrust cartels… benchmarking common goals? August 29, 2017
- Principal sells defaulted loans to investors August 26, 2017