Questions of and Answers from Principal
Considering the board has fiduciary responsibility for the direction of the retirement plan ...
Question: As this plan is closed to new members and has a mature active membership, has everything been done that should be done to protect the plan's assets within The Principal organization?
Answer: Separate account funds are not part of the general account. In the unlikely event of viability concerns associated with the Principal Financial Group, creditors could not lay claim to any of the separate accounts assets. The funds invested in a separate account cannot be used by The Principal or any other creditor. The income gains and losses from the account are credited to or charged against the account itself. This "pooled" account has no bearing on other income, gains, or losses from the Principal Financial Group general account.
Question: Does Principal take into account the plan's maturity when allocating the assets?
Answer: The mature nature of the plan is considered when we establish the target asset allocation. In addition to long range market expectations, we also consider plan liability characteristics and the relationship between the level of assets and liabilities. The short answer to the first question is yes, we do consider the plan's maturity when establishing the allocation. We feel the maturity is best measured by an analysis of the amount and timing of future cash outflows for benefit payments compared to the asset level of the plan.
In the Future
Question: If the board wants to change the allocation of the assets is this appropriate (timing) considering the market conditions?
If the board wished to direct Principal Financial Advisors, Inc. to invest plan assets more conservatively, we would do so. Our view, however, is that selling stocks now could result in a missed opportunity for a natural recovery. It's possible, however, that it could make sense to reduce the risk exposure if the plan liabilities exceed assets by to much. We're currently reviewing your plan's positioning now since we've recently received the new valuation.
Question: What should be the focus of the board and membership with these volatile market conditions?
A "white paper" prepared by the Principal is available which outlines specific action items based on the type of benefit plan offered to employees. As a government plan, not subject to ERISA, we still belive that these are the appropriate items to be focus on given the current market conditions. The only additional concerns would be any impact that current state statues might have on the plan.