Many plan sponsors assume that because Principal runs the 401(k), Principal is also watching the fees and the fund lineup. That is not necessarily true. The fiduciary oversight remains with you, the employer, and ERISA can hold you personally liable.
Preserve. Strengthen. Grow.™
If you sponsor a 401(k) plan administered by Principal Financial, the law treats you as a fiduciary the moment you make a discretionary decision about that plan. Selecting investments, hiring service providers, approving fees, monitoring performance: each of these is a fiduciary act. ERISA holds you to a standard of prudence that has nothing to do with whether your business is large or small, or whether the plan is your full-time job or a once-a-quarter committee meeting.
Many plan sponsors operating with Principal Financial are honest, well-meaning people who assumed that hiring a major recordkeeper covered their fiduciary exposure. It does not. Principal handles plan operations. The Principal plan sponsor fiduciary duty stays with you, alongside the broader Principal plan sponsor obligations that come with running an ERISA-governed plan.
What ERISA Actually Requires of a Principal 401(k) Plan Sponsor
ERISA Section 404(a) lays out four core fiduciary duties that apply to every plan sponsor, regardless of which recordkeeper administers the plan. These are the floor, not the ceiling.
The duty of loyalty requires you to act solely in the interest of plan participants and beneficiaries. The duty of prudence requires you to act with the care, skill, and diligence of a prudent expert familiar with retirement plans. The duty of diversification requires the plan menu to give participants reasonable options across asset classes. The duty to follow plan documents requires you to administer the plan according to its written terms, unless those terms conflict with ERISA itself.
The prudent expert standard is the one that catches many plan sponsors off guard. ERISA does not ask whether you did your best. It asks whether a hypothetical expert, familiar with retirement plan governance, would have made the same decisions in your position. If the answer is no, you have a problem regardless of intent.
Are Plan Sponsors Personally Liable for Principal 401(k) Fiduciary Failures?
Yes. ERISA Section 409(a) makes fiduciaries personally liable for losses from a breach of duty, and that liability is not capped at plan assets. Co-fiduciary liability under Section 405 extends exposure when one fiduciary knew of another’s breach. Principal 401(k) plan sponsor liability documentation matters for that reason.
What Principal Financial Does and Does Not Cover
Principal Financial is one of the largest 401(k) recordkeepers in the country. The platform handles plan operations efficiently: contribution processing, participant statements, distributions, loan administration, compliance testing, Form 5500 preparation. None of that work makes Principal a fiduciary on your plan in the way many sponsors assume.
Principal may serve as a 3(16) administrative fiduciary for specific plan operations if the service agreement includes that role. Principal may also offer 3(38) investment management services through affiliated advisory entities for an additional fee. But the default Principal recordkeeping arrangement does not transfer the core fiduciary duties to Principal. The plan sponsor remains the named fiduciary for investment selection, fee oversight, and overall plan governance.
This is not a criticism of Principal. It is how every major 401(k) recordkeeper operates. The recordkeeper runs the plumbing. The sponsor owns the prudence.
RETIREMENT ENGINEERING™
The Order Matters
Five retirement decisions and why timing matters.
The Five Core Duties on a Principal-Administered Plan
Principal 401(k) fiduciary oversight reduces to five recurring obligations that the sponsor owns regardless of how the recordkeeper packages its services. Each one shows up in a Department of Labor audit. Each one is testable in litigation.
1. Selecting and monitoring investments. The plan’s investment menu must offer a diversified set of options, and each fund must be reviewed on a recurring schedule. Performance, expense ratio, share class, manager tenure, and continued fit with the menu are the standard review categories. A fund that was prudent to add three years ago may not be prudent to keep today.
2. Benchmarking fees. ERISA requires fees to be reasonable in relation to services provided. Reasonable is not defined as cheapest. It is defined relative to the market for comparable plans. A plan sponsor who has not benchmarked plan fees in the past three years cannot demonstrate the fees are reasonable, which is itself a fiduciary problem. Benchmarking matters more on Principal plans because the fee structure often blends recordkeeping, administration, and investment costs in ways that make total cost hard to read at a glance.
3. Maintaining an Investment Policy Statement. The IPS is the document that says how investments are selected, monitored, and replaced. It is not legally required, but operating without one makes every investment decision harder to defend. The IPS is also the document the DOL asks for first in an audit.
4. Documenting committee meetings. A retirement plan committee that meets regularly and keeps written minutes is the single most effective fiduciary defense available. Decisions documented in real time are far more defensible than reconstructions made after the fact. Plan sponsors who skip committee meetings, or hold them without minutes, lose this protection entirely.
5. Distributing required disclosures. Section 404(a)(5) participant fee disclosures and Section 408(b)(2) service provider fee disclosures are not optional. Failing to distribute them on schedule is a per-participant violation that compounds quickly, and routine distribution is a baseline element of Principal 401(k) ERISA compliance.
How Often Should a Plan Sponsor Review the Principal 401(k) Investment Menu?
Quarterly is the prevailing practice for prudent plan governance. Some plans review semi-annually, which is acceptable when supported by a written Investment Policy Statement. Annual review alone is generally insufficient. The committee documents each review with written minutes that capture the data examined, the decisions made, and the reasoning behind any changes or non-changes to the menu.
The Fiduciary Gaps Many Principal Plan Sponsors Carry
In practice, the gap between what ERISA requires and what many Principal-administered plans actually do is meaningful. The pattern is consistent across the small and mid-sized plan market. The same gaps show up again and again.
The investment menu has not been reviewed in over a year, or it has been reviewed informally without written minutes. The IPS is missing entirely, or it is a generic template that does not reflect how the plan actually operates. Fees have not been benchmarked against comparable plans, often because the sponsor does not know how to access benchmarking data and the recordkeeper does not provide it. The retirement plan committee meets sporadically or not at all. There is no independent advisor reviewing the plan for the participants.
None of these gaps is unusual. All of them are correctable. And each one represents direct fiduciary exposure to the people named on the plan documents.
How an Independent Broker of Record Changes the Risk Profile
Bringing in an independent advisor as broker of record on a Principal 401(k) plan is the single most effective change a plan sponsor can make to address fiduciary gaps. The advisor relationship layers a credentialed, fee-transparent professional onto the plan whose job is to do the prudence work the sponsor is supposed to be doing alone.
An independent advisor serving as 3(21) co-fiduciary or 3(38) investment manager does several things that meaningfully change a sponsor’s risk picture. The advisor benchmarks fees against comparable plans on a recurring schedule and produces written documentation. The advisor reviews the investment menu against the IPS and recommends changes when warranted. The advisor sits in committee meetings, contributes to minutes, and provides the credentialed expert presence that the prudent expert standard contemplates. The advisor can also help the sponsor evaluate workplace retirement plan optimization features that may already be available on the recordkeeper’s platform but not yet adopted at the plan level.
The independent advisor model also separates the advice from the recordkeeping. Principal Financial sells products. An independent advisor does not. The advisor’s incentives align with the participants and the plan, not with the recordkeeper’s product shelf. That alignment is the fiduciary point.
This sits within the broader 401(k) governance category, which connects to 401k and workplace plan strategy for sponsors and the related 401k rollover strategy framework that high-balance participants use when they leave the company.
What Changes When an Independent Advisor Takes over Fee Oversight
Fee oversight is the area where independent advisor involvement produces the clearest, most defensible improvement to a Principal 401(k) plan. The advisor benchmarks the plan against comparable plans of similar size and demographics, documents the result in writing, and either confirms the current fee structure is reasonable or identifies specific items for renegotiation.
Renegotiation is often available without changing recordkeepers. Share class moves, revenue sharing rebates, and direct fee renegotiation can all happen inside an existing Principal arrangement once the sponsor has independent benchmarking data to support the conversation. The recordkeeper has no incentive to volunteer these moves. The advisor’s job is to surface them as part of comprehensive Principal retirement fiduciary oversight on the plan.
This is the same fiduciary discipline that applies to tax-efficient investing and to investment portfolio construction for individual clients. The principle is the same: independent advice paired with transparent fee structures tends to produce better outcomes than bundled product arrangements where the seller of the product is also the advisor on the product.
When a Plan Sponsor Should Formalize the Advisor Relationship
The right time to bring in an independent advisor as broker of record is before a fiduciary problem surfaces, not after. Three triggers consistently signal that the sponsor needs to formalize Principal 401(k) fiduciary oversight under an independent professional rather than continuing to handle it informally.
The first trigger is plan growth. Plans crossing $5 million, $10 million, or $25 million in assets attract a different level of regulatory and legal attention. Participant counts above 100 trigger annual audit requirements. The fiduciary expectations rise with the size of the plan.
The second trigger is participant complaints. A single high-balance participant raising questions about fees or investment options is often the early signal of a broader fiduciary gap. Excessive fee litigation in the small and mid-plan market has been increasing for over a decade, and many cases originated with one participant who started asking questions.
The third trigger is sponsor turnover. When a CFO, HR director, or business owner who has been handling the plan informally leaves the role, the institutional knowledge often leaves with them. Bringing in an independent advisor before the transition protects continuity. Bringing one in after the transition forces the new sponsor to inherit gaps they did not create.
Frequently Asked Questions
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Is Principal Financial a Fiduciary on My 401(k) Plan?
Principal Financial is generally not the named fiduciary on the plan in the same way the plan sponsor is. Principal handles recordkeeping and operations, and may serve as a 3(16) administrative fiduciary or 3(38) investment manager only when those services are explicitly elected and contracted for. The default Principal recordkeeping arrangement leaves the core investment selection, fee oversight, and plan governance duties with the sponsor. Reviewing the service agreement is the only way to confirm exactly which fiduciary roles Principal has agreed to take on for a specific plan.
What Is the Difference Between a 3(21) and 3(38) Fiduciary?
A 3(21) fiduciary is a co-fiduciary advisor who provides investment recommendations to the plan sponsor. The sponsor retains final decision-making authority and shares fiduciary liability with the advisor. A 3(38) fiduciary is an investment manager who has discretionary authority to select and replace investments without sponsor approval and accepts full fiduciary liability for those decisions. The 3(38) arrangement transfers more risk away from the sponsor but reduces sponsor control. Both arrangements can work alongside a Principal recordkeeping plan.
How Often Should We Benchmark Our Principal 401(k) Plan Fees?
Industry practice is to benchmark plan fees against comparable plans every two to three years at minimum, with annual benchmarking preferred for larger plans. Benchmarking should examine total plan cost, broken down across recordkeeping, administration, advisory, and investment expenses. Sponsors who cannot produce a written benchmarking analysis on request from the Department of Labor have a fiduciary documentation gap that is straightforward to fix and damaging to ignore.
Do We Need an Investment Policy Statement If We Use Principal Financial?
An Investment Policy Statement is not legally required under ERISA, but operating without one makes every investment decision harder to defend in an audit or in litigation. The IPS sets the criteria for selecting, monitoring, and replacing funds in the plan. The Department of Labor typically asks for the IPS first when reviewing plan governance. Sponsors using Principal as recordkeeper should maintain an IPS that reflects how their specific plan operates, not a generic template provided by the recordkeeper.
Can Switching Brokers of Record Reduce Our Fiduciary Exposure?
Bringing in an independent broker of record may reduce fiduciary exposure when the new advisor takes on a 3(21) co-fiduciary or 3(38) investment manager role and actively performs the prudence work the sponsor would otherwise need to do alone. Switching the broker of record listed on the plan does not by itself transfer fiduciary duty. The protection comes from the advisor’s scope of services, fee structure, and documented work, not from the title on the paperwork. Read the engagement letter carefully before assuming exposure has shifted.
What Does a Typical Retirement Plan Committee Meeting Look Like?
A retirement plan committee typically meets quarterly with a written agenda covering investment performance, fee review, plan operations, participant issues, and any compliance updates. Attendance includes the named fiduciaries, often the CFO and HR director, and the independent advisor if one is engaged. Minutes are taken in real time, capture the data reviewed and the decisions made, and are signed and archived. Plans without committees, or with committees that meet without minutes, lose one of the most defensible fiduciary protections available under ERISA.
What Is the Most Common Principal 401(k) Fiduciary Mistake?
The most common fiduciary mistake on Principal-administered plans is assuming the recordkeeper has the fiduciary duty when in fact the sponsor does. This assumption leads sponsors to skip benchmarking, skip committee meetings, skip the IPS, and treat the plan as a checkbox rather than a governance obligation. The mistake is rarely intentional. It is almost always a knowledge gap that was never closed. Once the gap is identified, every fix is straightforward. Visit our workplace retirement plan optimization resources for the framework sponsors use to close it.
Can High-Balance Participants Get Individualized Portfolio Management Inside a Principal Plan?
Principal Financial supports self-directed brokerage account access through Schwab as a platform capability. Whether your specific plan offers SDBA to participants is a plan sponsor decision, governed by the plan document and your fiduciary review process. For plans that do offer it, qualifying high-balance participants can access individually managed accounts through Schwab without rolling assets out of the plan, and an independent advisor can manage those assets directly inside the plan wrapper. Adoption is a separate decision from the broker-of-record relationship, which delivers fee oversight and fiduciary support on its own merits regardless of whether SDBA is ever activated. You can also read more in our 401(k) Fiduciary Oversight guide.
