Form 11-K PRINCIPAL FINANCIAL GROU For: Dec 31

June 23, 2021 3:58 PM EDT

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

 

Washington, D.C. 20549

 

FORM 11-K

 

(Mark One)

 

xANNUAL REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the fiscal year ended: December 31, 2020

 

OR

 

¨  TRANSITION REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from ____________ to _____________

 

Commission file number: 1-16725

 

The Principal Select Savings Plan for Employees

(Full title of the plan)

 

Principal Financial Group, Inc.

 

(Name of Issuer of the securities held pursuant to the plan)

 

711 High Street

Des Moines, Iowa 50392

(Address of principal executive offices) (Zip Code)

 

 

 

 

 

 

 

Report of Independent Registered Public Accounting Firm

 

To the Plan participants and the Benefit Plans Administration Committee

Principal Financial Group, Inc.

 

Opinion on the Financial Statements

 

We have audited the accompanying statements of net assets available for benefits of The Principal Select Savings Plan for Employees (the Plan) as of December 31, 2020 and 2019, and the related statement of changes in net assets available for benefits for the year ended December 31, 2020, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the net assets available for benefits of the Plan at December 31, 2020 and 2019, and the changes in its net assets available for benefits for the year ended December 31, 2020, in conformity with U.S. generally accepted accounting principles.

 

Basis for Opinion

 

These financial statements are the responsibility of the Plan’s management. Our responsibility is to express an opinion on the Plan’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Plan in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

 

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Plan is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Plan’s internal control over financial reporting. Accordingly, we express no such opinion.

 

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

 

Supplemental Schedule

 

The accompanying supplemental schedule of assets (held at end of year) as of December 31, 2020, has been subjected to audit procedures performed in conjunction with the audit of the Plan’s financial statements. The information in the supplemental schedule is the responsibility of the Plan’s management. Our audit procedures included determining whether the information reconciles to the financial statements or the underlying accounting and other records, as applicable, and performing procedures to test the completeness and accuracy of the information presented in the supplemental schedule. In forming our opinion on the information, we evaluated whether such information, including its form and content, is presented in conformity with the Department of Labor’s Rules and Regulations for Reporting and Disclosure under the Employee Retirement Income Security Act of 1974. In our opinion, the information is fairly stated, in all material respects, in relation to the financial statements as a whole.

 

We have served as the Plan’s auditor since at least 2001, but we are unable to determine the specific year.

 

/s/ Ernst & Young LLP

 

Des Moines, Iowa

 

June 23, 2021

 

2

 

 

The Principal Select Savings Plan for Employees

 

Statements of Net Assets Available for Benefits

 

   December 31, 
   2020   2019 
Assets          
Investments at fair value:          
Unallocated investment options:          
Deferred income annuity  $2,379,704   $2,144,958 
Guaranteed interest accounts   29,901,810    30,880,909 
Separate accounts   2,136,550,326    1,978,759,839 
Principal Financial Group, Inc. Employee Stock          
Ownership Plan   96,493,917    100,996,238 
Collective investment trusts   833,940,817    696,680,506 
Self-directed brokerage account   4,163,091    2,910,426 
Total invested assets at fair value   3,103,429,665    2,812,372,876 
Plan interest in Master Trust Investment Account          
at contract value   200,870,948    128,164,442 
Total investments   3,304,300,613    2,940,537,318 
           
Receivables:          
Contributions receivable from employer   2,478,479    2,129,152 
Contributions receivable from participants   755    1,164 
Notes receivable from participants   18,885,249    19,632,765 
Other receivables   9,204     
Total receivables   21,373,687    21,763,081 
Net assets available for benefits  $3,325,674,300   $2,962,300,399 

 

See accompanying notes.

 

3

 

 

The Principal Select Savings Plan for Employees

 

Statement of Changes in Net Assets Available for Benefits

 

   For the 
   year ended 
   December 31, 
   2020 
Additions     
Investment income:     
Interest  $343,435 
Dividends   4,489,298 
Net appreciation of investments   397,903,079 
Interest in Master Trust Investment Account   3,297,620 
Total investment gain   406,033,432 
      
Interest income on notes receivable from participants   1,201,328 
      
Contributions:     
Employer   53,722,787 
Participants   115,733,105 
Total contributions   169,455,892 
Total additions   576,690,652 
      
Deductions     
Benefits paid to participants   209,354,072 
Transfers to affiliated plans, net   2,334,457 
Administrative expenses   1,628,222 
Total deductions   213,316,751 
Net increase   363,373,901 
      
Net assets available for benefits at beginning of year   2,962,300,399 
Net assets available for benefits at end of year  $3,325,674,300 

 

See accompanying notes.

 

4

 

 

The Principal Select Savings Plan for Employees

 

Notes to Financial Statements

 

December 31, 2020

 

1. Significant Accounting Policies

 

Basis of Accounting

 

The accounting records of The Principal Select Savings Plan for Employees (the Plan) are maintained on the accrual basis of accounting in accordance with U.S. generally accepted accounting principles (GAAP).

 

Valuation of Investments and Income Recognition

 

Investments held by the Plan are stated at fair value, which is defined as the price that would be received to sell an asset in an orderly transaction between market participants at the measurement date (an exit price). See Note 4 for further discussion and disclosures related to fair value measurements.

 

Interest income is recorded as earned. Dividends are recorded on the ex-dividend date. Net appreciation (depreciation) includes the Plan’s gains and losses on investments bought and sold as well as held during the year.

 

Notes Receivable From Participants

 

The notes receivable from participants are reported at their unpaid principal balance plus any accrued but unpaid interest. Interest income on notes receivable from participants is recorded when earned.

 

Payment of Benefits

 

Benefits are recorded when paid.

 

Risks and Uncertainties

 

The Plan invests in various investment securities. Investment securities are exposed to various risks such as interest rate, market volatility, and credit risks. Due to the level of risk associated with certain investment securities, it is at least reasonably possible that changes in the values of investment securities will occur in the near term and that such changes could materially affect participants’ account balances and the amounts reported in the Statements of Net Assets Available for Benefits.

 

5

 

 

The Principal Select Savings Plan for Employees

 

Notes to Financial Statements (continued)

 

1. Significant Accounting Policies (continued)

 

Use of Estimates

 

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates that affect the amounts reported in the financial statements and accompanying notes and supplemental schedule. Actual results could differ from those estimates.

 

Recent Accounting Pronouncement

 

In August 2018, the Financial Accounting Standards Board issued authoritative guidance on fair value measurement disclosures under ASC Topic 820. This guidance was adopted retrospectively in 2020 and did not have a material impact on the Plan’s financial statements.

 

2. Description of the Plan

 

The Plan is a defined contribution 401(k) plan that was established January 1, 1985. The Plan is available to employees and field managers of Principal Life Insurance Company (Principal Life) and its subsidiaries or affiliates (the Company) who meet eligibility requirements. The Plan Sponsor is Principal Financial Group, Inc. (PFG), the ultimate parent of Principal Life.

 

Information about the Plan, including eligibility, and benefit provisions is contained in the Summary Plan Description. Copies of the Summary Plan Description are available from Principal Life’s Human Resources Benefits Department or the Company’s intranet. The Plan is subject to the provisions of the Employee Retirement Income Security Act of 1974, as amended (ERISA).

 

The Plan Administrator is responsible for the control and administration of the Plan. The Plan Administrator is the Benefit Plans Administration Committee (BPAC). For the purposes of investment and protection of Plan assets, the named fiduciary of the Plan is the Benefit Plans Investment Committee. The Plan is funded through a trust fund that holds group annuity contracts issued by Principal Life and collective investment trusts (CITs) issued by Principal Global Investors Trust Company (PGITC), an indirect wholly owned affiliate of PFG. The PFG Employee Stock Ownership Plan (ESOP), which consists of common stock of PFG, is held in a separate trust. The Trustees of the Trust that hold the group annuity contracts and CITs are employees of Principal Life. Bankers Trust is the Trustee of the Trust that holds PFG common stock in the ESOP. Delaware Charter Guarantee & Trust Company, doing business as Principal Trust Company, an affiliate of PFG, is the Directed Trustee of the self-directed brokerage account (SDBA). Principal Life is the recordkeeper of the Plan.

 

6

 

 

The Principal Select Savings Plan for Employees

 

Notes to Financial Statements (continued)

 

2. Description of the Plan (continued)

 

Contributions

 

On January 1, 2006, the Company made several changes to the retirement program. Participants who were age 47 or older with at least ten years of service on December 31, 2005, could elect to retain the prior benefit provisions under the qualified defined benefit retirement plan and the Plan and forgo receipt of the additional benefits offered by amendments to the Plan. The participants who elected to retain the prior benefit provisions are referred to as “Grandfathered Choice Participants.”

 

Matching contributions for participants other than Grandfathered Choice Participants were increased from 50% to 75% of deferrals, with the maximum matching deferral increasing from 6% to 8% of eligible pay-period compensation.

 

Participant Accounts

 

Each participant’s account is credited with the participant’s contributions and the Company’s matching contributions. The participant’s account also receives an allocation of plan earnings and administrative expenses. Plan earnings are allocated based on the participant’s share of net earnings or losses of their respective elected investment options. Allocations of administrative expenses are based on the participant’s account balances, as defined. The benefit to which a participant is entitled is the benefit that can be provided from the participant’s vested account.

 

Vesting

 

Participants are eligible for immediate entry into the Plan with vesting at 100% after three years. The funds accumulate along with interest and investment return and are available for withdrawal by participants at retirement, termination, or when certain withdrawal specifications are met. The participants may also obtain loans of their vested accrued benefit, subject to certain limitations described in the governing document (the Plan Document). The federal and state income taxes of the participant are deferred (except in the case of Roth deferrals) on the contributions until the funds are withdrawn from the Plan.

 

Forfeitures

 

Upon termination of employment, participants forfeit their non-vested balances. Forfeited amounts are used to reduce Company contributions. As of December 31, 2020 and 2019, forfeited non-vested account balances totaled $17,042 and $20,531, respectively. In 2020 and 2019, employer contributions were reduced by $1,282,024 and $1,226,854, respectively, from forfeited non-vested accounts.

 

7

 

 

The Principal Select Savings Plan for Employees

 

Notes to Financial Statements (continued)

 

2. Description of the Plan (continued)

 

Participant Loans

 

The Plan provides for loans to active participants, which are considered a participant-directed investment of his/her account. The loan is a Plan asset, but only the borrowing participant’s account shares in the interest paid on the loan or bears any expense or loss incurred because of the loan. The rate of interest is 2% higher than the Federal Reserve “Bank Prime Loan” rate at the time of the loan. The rate is set the day a loan is approved. Loans merged into the Plan come with existing rates at the time of the merger.

 

The loan rates were as follows:

 

Participant Loan Dates  Rates 
January 1, 2013 to December 16, 2015   5.25%
December 17, 2015 to December 14, 2016   5.50%
December 15, 2016 to March 21, 2017   5.75%
March 22, 2017 to June 20, 2017   6.00%
June 21, 2017 to December 19, 2017   6.25%
December 20, 2017 to March 27, 2018   6.50%
March 28, 2018 to June 19, 2018   6.75%
June 20, 2018 to October 2, 2018   7.00%
October 3, 2018 to December 25, 2018   7.25%
December 26, 2018 to August 6, 2019   7.50%
August 7, 2019 to September 24, 2019   7.25%
September 25, 2019 to November 5, 2019   7.00%
November 6, 2019 to March 3, 2020   6.75%
March 4, 2020 to March 10, 2020   6.68%
March 11, 2020 to March 17, 2020   6.25%
March 18, 2020 to March 24, 2020   5.82%
March 25, 2020 to December 31, 2020   5.25%

 

Plan Termination

 

Although it has not expressed any intent to do so, the Company has the right under the Plan to discontinue its contributions at any time and to terminate the Plan subject to the provisions of ERISA. In the event the Plan terminates, affected participants will become fully vested in their accounts.

 

8

 

 

The Principal Select Savings Plan for Employees

 

Notes to Financial Statements (continued)

 

3. Income Tax Status

 

The Plan has received a determination letter from the Internal Revenue Service (the IRS) dated October 12, 2017, stating that the Plan is qualified under Section 401(a) of the Internal Revenue Code (the Code) and, therefore, the related trust is exempt from taxation. Subsequent to this determination by the IRS, the Plan was amended and restated. The Plan and the Trust are required to operate in conformity with the terms of the Plan Document and the Code to maintain the tax-exempt status of the Trust. BPAC and the Company believe the Plan is being operated in compliance with the applicable requirements of the Code and therefore, believe the related Trust is tax-exempt.

 

U.S. GAAP requires plan management to evaluate uncertain tax positions taken by the Plan. The financial statement effects of a tax position are recognized when the position is more likely than not, based on the technical merits, to be sustained upon examination by the IRS. BPAC relies on the representations of the corporate tax department regarding the tax positions taken by the Plan and has concluded that as of December 31, 2020, there are no uncertain positions taken or expected to be taken. The Plan has recognized no interest or penalties related to uncertain tax positions.

 

The Plan is subject to routine audits by taxing jurisdictions; however, there are currently no audits for any tax periods in progress.

 

4. Fair Value of Financial Instruments (excluding interest in Master Trust Investment Account)

 

Valuation Hierarchy

 

Fair value is defined as the price that would be received to sell an asset in an orderly transaction between market participants at the measurement date (an exit price). The fair value hierarchy prioritizes the inputs to valuation techniques used to measure fair value into three levels.

 

Level 1 – Fair values are based on unadjusted quoted prices in active markets for identical assets. The Plan’s Level 1 assets include the Principal Financial Group, Inc. ESOP and the SDBA.

 

Level 2 – Fair values are based on inputs other than quoted prices within Level 1 that are observable for the asset, either directly or indirectly. The Plan’s Level 2 assets include separate accounts and CITs and are reflected at the net asset value (NAV).

 

Level 3 – Fair values are based on significant unobservable inputs for the asset. The Plan’s Level 3 assets include the deferred income annuity and guaranteed interest accounts.

 

There were no transfers between levels during 2020 and 2019.

 

9

 

 

The Principal Select Savings Plan for Employees

 

Notes to Financial Statements (continued)

 

4. Fair Value of Financial Instruments (excluding interest in Master Trust Investment Account) (continued)

 

Determination of Fair Value

 

The following discussion describes the valuation methodologies used for assets measured at fair value on a recurring basis. The techniques utilized in estimating the fair values of financial instruments are reliant on the assumptions used. Care should be exercised in deriving conclusions based on the fair value information of financial instruments presented below.

 

Fair value estimates are made at a specific point in time, based on available market information and judgments about the financial instrument. Such estimates do not consider the tax impact of the realization of unrealized gains or losses. In addition, the disclosed fair value may not be realized in the immediate settlement of the financial instrument. There were no significant changes to the valuation processes during 2020 or 2019.

 

The unallocated investment options consist of a deferred income annuity, guaranteed interest accounts under a guaranteed benefit policy (as defined in section 401(b) of ERISA), and separate accounts (as defined in ERISA section 3(17)) of Principal Life. The deferred income annuity and guaranteed interest accounts are reported at fair value while the separate accounts are reported at NAV as determined by Principal Life. These unallocated investment options are non-benefit-responsive.

 

Deferred Income Annuity

 

The deferred income annuity cannot be sold to a third party; thus, the only option to exit the deferred income annuity is to withdraw or transfer the funds. The fair value for each deferred income annuity surrendered within 90 days from the date of the purchase is the purchase amount of the surrendered portion. The fair value for each deferred income annuity surrendered more than 90 days after the date of the purchase is the lesser of the guaranteed income balance or the commuted value associated with the surrendered portion of the deferred income annuity. The fair value will never be greater than and may be less than the guaranteed income balance associated with the surrendered portion of the deferred income annuity. The fair value of the deferred income annuity is reflected in Level 3.

 

Guaranteed Interest Accounts

 

The guaranteed interest accounts cannot be sold to a third party; thus, the only option to exit the guaranteed interest accounts is to withdraw or transfer the funds prior to maturity for an event other than death, disability, termination, or retirement. The fair value represents guaranteed interest account values adjusted to reflect current market interest rates only to the extent such market rates exceed contract crediting rates. This value represents contributions allocated to the guaranteed interest accounts, plus interest at the contractually guaranteed rate, less funds used to pay Plan benefits and Principal Life’s administrative expenses. The fair value of the guaranteed interest accounts is reflected in Level 3.

 

10

 

 

The Principal Select Savings Plan for Employees

 

Notes to Financial Statements (continued)

 

4. Fair Value of Financial Instruments (excluding interest in Master Trust Investment Account) (continued)

 

Separate Accounts

 

Separate accounts are designed to deliver safety and stability by preserving principal and accumulating earnings. The separate account assets include, but are not limited to, contributions invested in domestic and international common stocks, high-quality short-term debt securities, real estate, private market bonds and mortgages, and high-yield fixed income securities that are slightly below investment grade, all of which are valued at fair value. The NAV of each of the separate accounts is calculated in a manner consistent with GAAP for investment companies and is determinative of their fair value and represents the price at which the Plan would be able to initiate a transaction. The fair value of the underlying funds and securities is used to determine the NAV of the separate account, which is not publicly quoted. The fair value of the underlying mutual funds and equity securities are based on quoted prices of identical assets. The fair value of the underlying fixed income securities are based on third-party pricing vendors that utilize observable market information. The fair value of all separate accounts is reflected in Level 2.

 

One separate account invests in real estate, for which the fair value of the underlying real estate is based on unobservable inputs and used to determine the NAV of the separate account. The fair value of the underlying real estate is estimated using discounted cash flow valuation models that utilize public real estate market data inputs such as transaction prices, market rents, vacancy levels, leasing absorption, market cap rates, and discount rates. In addition, each property is appraised annually by an independent appraiser. During 2020, this specific separate account had a temporary withdrawal limitation related to turmoil in the credit markets that resulted in a sharp slowdown in the sale of commercial real estate assets. See Note 5 for further discussion related to contingencies.

 

Principal Financial Group, Inc. ESOP

 

The ESOP is reported at fair value based on the quoted closing market price of PFG’s stock on the last business day of the Plan year and is reflected in Level 1.

 

Collective Investment Trusts

 

The CITs invest in growth and value stocks of small, medium and large market capitalization companies, fixed-income securities, domestic and foreign securities, securities denominated in foreign currencies, investment companies (including index funds), securitized products, U.S. government and U.S. government-sponsored securities and derivatives. The NAV of the CITs is calculated in a manner consistent with GAAP for investment companies and is determinative of their fair value and represents the price at which the Plan would be able to initiate a transaction. The fair value of the underlying funds and securities is used to determine the NAV of the CITs. The CITs are reflected in Level 2.

 

11

 

 

The Principal Select Savings Plan for Employees

 

Notes to Financial Statements (continued)

 

4. Fair Value of Financial Instruments (excluding interest in Master Trust Investment Account) (continued)

 

Self-Directed Brokerage Account

 

Plan participants have access to a limited number of mutual funds through the SDBA. The SDBA is reflected in Level 1.

 

Assets Measured at Fair Value on a Recurring Basis

 

Assets measured at fair value on a recurring basis are summarized below.

 

   As of December 31, 2020 
   Assets   Fair Value Hierarchy Level 
   measured             
   at fair             
   value   Level 1   Level 2   Level 3 
Assets                    
Deferred income annuity  $2,379,704   $   $   $2,379,704 
Guaranteed interest accounts   29,901,810            29,901,810 
Separate accounts   2,136,550,326        2,136,550,326     
Principal Financial Group, Inc. ESOP   96,493,917    96,493,917         
Collective investment trusts   833,940,817        833,940,817     
Self-directed brokerage account   4,163,091    4,163,091         
Total invested assets, excluding Plan interest                    
in Master Trust Investment Account  $3,103,429,665   $100,657,008   $2,970,491,143   $32,281,514 

 

   As of December 31, 2019 
   Assets   Fair Value Hierarchy Level 
   measured             
   at fair             
   value   Level 1   Level 2   Level 3 
Assets                    
Deferred income annuity  $2,144,958   $   $   $2,144,958 
Guaranteed interest accounts   30,880,909            30,880,909 
Separate accounts   1,978,759,839        1,978,759,839     
Principal Financial Group, Inc. ESOP   100,996,238    100,996,238         
Collective investment trusts   696,680,506        696,680,506     
Self-directed brokerage account   2,910,426    2,910,426         
Total invested assets, excluding Plan interest                    
in Master Trust Investment Account  $2,812,372,876   $103,906,664   $2,675,440,345   $33,025,867 

 

Changes in Level 3 Fair Value Measurements

 

The reconciliation for all assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the years ended December 31, 2020 and 2019, was as follows:

 

12

 

 

   For the year ended December 31, 2020   Changes in 
                           Unrealized 
   Beginning                       Gains 
   Asset                   Ending Asset   Included in Changes 
   Balance                   Balance   in Net Assets 
   as of               Transfers   as of   Available for 
   January 1,               In (Out) of   December 31,   Benefits Relating to 
   2020   Interest*   Purchases**   Sales**   Level 3   2020   Positions Still Held 
Assets                                   
Deferred income annuity  $2,144,958   $14,936   $516,878   $(297,068)  $   $2,379,704   $14,936 
Guaranteed interest accounts   30,880,909    606,112    14,446,954    (16,032,165)       29,901,810    262,677 
Total  $33,025,867   $621,048   $14,963,832   $(16,329,233)  $   $32,281,514   $277,613 

 

   For the year ended December 31, 2019   Changes in 
                           Unrealized 
   Beginning                       Gains 
   Asset                   Ending Asset   Included in Changes 
   Balance                   Balance   in Net Assets 
   as of               Transfers   as of   Available for 
   January 1,               In (Out) of   December 31,   Benefits Relating to 
   2019   Interest*   Purchases**   Sales**   Level 3   2019   Positions Still Held 
Assets                                   
Deferred income annuity  $1,524,473   $273,478   $1,056,661   $(709,654)  $   $2,144,958   $273,478 
Guaranteed interest accounts   29,867,853    1,022,163    11,091,700    (11,100,807)       30,880,909    624,154 
Total  $31,392,326   $1,295,641   $12,148,361   $(11,810,461)  $   $33,025,867   $897,632 

 

*Includes interest and unrealized gains or losses.

** Includes contributions, transfers from affiliated and unaffiliated plans, transfers to other investments via participant election, benefits paid to participants, and administrative expenses.

 

Quantitative Information about Level 3 Fair Value Measurements

 

The following table provides quantitative information about the significant unobservable inputs used for recurring fair value measurements categorized within Level 3.

 

   As of December 31, 2020 
   Assets              
   measured at   Valuation  Unobservable  Input/range  Weighted 
   fair value   technique  input description  of inputs  average 
Assets                   
Deferred income annuity  $2,379,704   Discounted cash flow  Long duration interest rate  2.01%  ̶  4.19%   3.19%
           Mortality rate  See note (1)     
                    
Guaranteed interest accounts   29,901,810   See note (2)  Interest rate on account  0.21%  ̶  2.35%   1.10%
           Applicable interest rate  0.61%  ̶  1.00%   0.66%
           Maturity date  12/31/2020  ̶  12/31/2026     

 

   As of December 31, 2019 
   Assets              
   measured at   Valuation  Unobservable  Input/range  Weighted 
   fair value   technique  input description  of inputs  average 
Assets                   
Deferred income annuity  $2,144,958   Discounted cash flow  Long duration interest rate  2.77%  ̶  4.19%   3.60%
           Mortality rate  See note (1)     
                    
Guaranteed interest accounts   30,880,909   See note (2)  Interest rate on account  0.60%  ̶  2.35%   1.26%
           Applicable interest rate  2.07%  ̶  2.26%   2.10%
           Maturity date  12/31/2019  ̶  12/31/2025     

 

(1)This input is based on an industry mortality table and a range does not provide a meaningful presentation.

 

(2)If the applicable interest rate is equal to or less than the interest rate on the account, the fair market value is equal to the contract value. If the applicable interest rate is greater than the interest rate on the account, the fair market value is the contract value reduced by a percentage. This percentage is equal to the difference between the applicable interest rate and the interest rate on the account, multiplied by the number of years (including fractional parts of a year) until the maturity date.

 

13

 

 

5. Contingencies

 

During the first quarter of 2020, the global spread of COVID-19 resulted in volatility in the public equities market, which also impacted the Principal U.S. Property Separate Account. Due to these and other factors, investors submitted an unusual number of withdrawal requests in a concentrated period of time. To allow for orderly administration and management benefiting all separate account investors, Principal Life implemented a pre-existing contractual limitation to delay withdrawal requests for this separate account. Certain high need payments, such as death, disability, required minimum distributions, and hardship withdrawals, were not subject to the withdrawal limitation. Other withdrawal requests were subject to the limitation and such payments were delayed until certain liquidity levels were achieved. Since the inception of the withdrawal limitation, outstanding withdrawal requests have been paid in multiple payments. Except for certain de minimis payments, payments were made proportionately among all other outstanding withdrawal requests, based upon available liquidity. All withdrawals are being transacted at the NAV price at the date of distribution. The withdrawal limitation has been in place since March 20, 2020.

 

While the outcome of any future litigation or regulatory matter cannot be predicted, management does not believe that any future litigation or regulatory matter will have a material adverse effect on our net assets available for benefits. The outcome of such matters is always uncertain, and unforeseen results can occur. It is possible that such outcomes could materially affect net assets available for benefits in a particular year.

 

6. Interest in Master Trust Investment Account

 

A portion of the Plan’s investments are in the Principal Select Stable Value Separate Account (PSSVSA), which is reported as a Master Trust Investment Account (MTIA). The MTIA was established for the investment of assets of The Principal Select Savings Plan for Employees and The Principal Select Savings Plan for Individual Field (the Plans). The Plans gain access to the PSSVSA through a group annuity contract (Contract) issued by Principal Life. Each participating plan has an undivided interest in the PSSVSA. The PSSVSA is an insurance company separate account that invests in Morley Stable Income Bond Funds (Bond Funds) and the Principal Liquid Asset Separate Account (PLASA). The Bond Funds are collective investment trusts that invest in investment-grade fixed income securities. The Bond Funds are maintained by PGITC. The PLASA is a separate account that invests in high quality short term instruments. The PSSVSA is valued at contract value as reported to the Plans by Principal Life.

 

As of December 31, 2020 and 2019, the Plan’s interest in the net assets of the MTIA was approximately 89%. Investment income and administrative expenses are allocated to the individual plans based upon each plan’s interest in the MTIA.

 

The Contract provides a crediting rate that amortizes portfolio gains and losses over time and accounts for benefit payments to the Plans’ participants at the contract value. Under the Contract, Principal Life

 

14

 

 

The Principal Select Savings Plan for Employees

 

Notes to Financial Statements (continued)

 

6. Interest in Master Trust Investment Account (continued)

 

agrees to pay any deficiency if the investments in the PSSVSA have been exhausted for benefit payments and the contract value is greater than zero. The objective of the PSSVSA is to preserve capital, credit relatively stable returns consistent with its comparatively low risk profile, and provide liquidity for benefit-responsive payments. The crediting interest rate is based on a formula agreed upon with Principal Life, but it may not be less than 0%. Such interest rates are reviewed on a monthly basis for resetting.

 

Certain events limit the ability of the Plans to transact at contract value with Principal Life when material event withdrawals are made, including (1) certain events that result in the termination of employment of a group of participants (including through layoffs or early retirement incentive programs instituted by the Company) representing 25% or more of the Plan Members in any calendar year, (2) a certain spin-off or sale of the Company’s business entity or location that affect more than 25% of the Plan Members, (3) certain adoptions of amendments to one of the plans, any change in practice, or any change in participant withdrawal rights under one of the plans. The Plans do not believe that the occurrence of any such material event is probable.

 

As required by Accounting Standards Codification (ASC) 962, Plan Accounting – Defined Contribution Pension Plans, the Statements of Net Assets Available for Benefits present the fair value of investments, excluding the fully benefit-responsive investment contract which is presented at contract value. The Statement of Changes in Net Assets Available for Benefits is prepared on a contract value basis.

 

The net assets, including investments, of the MTIA was as follows:  

 

   December 31, 2020 
   MTIA   Plan interest in the MTIA 
PLASA  $4,740,264   $4,240,627 
Bond funds   219,815,469    196,646,289 
Total assets   224,555,733    200,886,916 
Payables   (17,849)   (15,968)
Total net assets at contract value  $224,537,884   $200,870,948 

 

   December 31, 2019 
   MTIA   Plan interest in the MTIA 
PLASA  $4,936,436   $4,406,843 
Bond funds   138,636,758    123,763,458 
Total assets   143,573,194    128,170,301 
Payables   (6,563)   (5,859)
Total net assets at contract value  $143,566,631   $128,164,442 

 

15

 

 

The Principal Select Savings Plan for Employees

 

Notes to Financial Statements (continued)

 

6. Interest in Master Trust Investment Account (continued)

 

Investment income for the MTIA was as follows:

 

   For the year ended December 31, 2020 
   MTIA   Plan interest in
the MTIA
 
Interest income  $3,939,943   $3,524,662 
Expenses   (261,136)   (227,042)
Total investment income  $3,678,807   $3,297,620 

 

7. Related Party Transactions

 

In addition to the transactions with parties in interest discussed herein, Principal Life provides recordkeeping services to the Plan and receives fees. There is a fee charged by Principal Life for the guarantee it provides for participant balances that allows participants to transact at contract value for the PSSVSA. Fees were paid by Plan participants. The Company may pay other Plan expenses from time to time. The ESOP received $4,439,022 in dividends from PFG in 2020.

 

These transactions are exempt from the prohibited transactions rules of ERISA.

 

8. Form 5500

 

The following table reconciles net assets available for benefits per the Statements of Net Assets Available for Benefits to the Form 5500:

 

   December 31, 
   2020   2019 
Net assets available for benefits per the Statements of Net Assets Available for Benefits  $3,325,674,300   $2,962,300,399 
Adjustments from contract value to fair value for fully benefit-responsive investment contract   6,184,572    1,342,884 
Net assets available for benefits per the Form 5500  $3,331,858,872   $2,963,643,283 

 

The following table reconciles the Statement of Changes in Net Assets Available for Benefits to the Form 5500:

 

   December 31, 
   2020 
Net change from contract value to fair value for fully benefit-responsive investment contracts  $4,841,687 
MTIA investment income   3,297,620 
Net investment gain from MTIA per the Form 5500  $8,139,307 

 

16

 

 

The Principal Select Savings Plan for Employees

 

Notes to Financial Statements (continued)

 

8. Form 5500 (continued)

 

GAAP requires that the Plan reports interest in fully benefit-responsive contracts at contract value, while the Form 5500 is required to report these investments at fair value.

 

17

 

 

The Principal Select Savings Plan for Employees

 

EIN: 42-1520346 Plan Number: 003

 

Schedule H, Line 4i – Schedule of Assets
(Held at End of Year)

 

December 31, 2020

 

   Description of  Current 
Identity of Issue  Investment  Value 
Principal Life Insurance Company*  Deposits in deferred income annuity  $2,379,704 
         
Principal Life Insurance Company*  Deposits in guaranteed interest accounts   29,901,810 
         
Principal Life Insurance Company*  Deposits in insurance company Small-Cap Value II Separate Account   27,238,070 
         
Principal Life Insurance Company*  Deposits in insurance company U.S. Property Separate Account   206,725,805 
         
Principal Life Insurance Company*  Deposits in insurance company Core Plus Bond Separate Account   143,562,758 
         
Principal Life Insurance Company*  Deposits in insurance company Diversified International Separate Account   178,294,624 
         
Principal Life Insurance Company*  Deposits in insurance company Large-Cap Stock Index Separate Account   400,998,550 
         
Principal Life Insurance Company*  Deposits in insurance company Government and High Quality Bond Separate Account   48,761,737 
         
Principal Life Insurance Company*  Deposits in insurance company Mid-Cap Separate Account   278,504,298 
         
Principal Life Insurance Company*  Deposits in insurance company Origin Emerging Markets Separate Account   106,951,012 
         
Principal Life Insurance Company*  Deposits in insurance company Diversified Real Asset Separate Account   4,434,211 

 

18

 

 

The Principal Select Savings Plan for Employees

 

EIN: 42-1520346 Plan Number: 003

 

Schedule H, Line 4i – Schedule of Assets
(Held at End of Year)

 

   Description of  Current 
Identity of Issue  Investment  Value 
Principal Life Insurance Company*  Deposits in insurance company Inflation Protection Separate Account  $37,064,123 
         
Principal Life Insurance Company*  Deposits in insurance company Large-Cap Growth I Separate Account   215,383,856 
         
Principal Life Insurance Company*  Deposits in insurance company Blue Chip Separate Account   80,619,167 
         
Principal Life Insurance Company*  Deposits in insurance company Small-Cap Growth I Separate Account   99,473,246 
         
Principal Life Insurance Company*  Deposits in insurance company Small-Cap Stock Index Separate Account   177,898,814 
         
Principal Life Insurance Company*  Deposits in insurance company Equity Income Separate Account   130,640,055 
         
Principal Global Investors Trust Company*  Collective investment trust Lifetime Hybrid 2010   12,708,825 
         
Principal Global Investors Trust Company*  Collective investment trust Lifetime Hybrid 2015   4,148,567 
         
Principal Global Investors Trust Company*  Collective investment trust Lifetime Hybrid 2020   83,521,185 
         
Principal Global Investors Trust Company*  Collective investment trust Lifetime Hybrid 2025   43,202,459 
         
Principal Global Investors Trust Company*  Collective investment trust Lifetime Hybrid 2030   209,549,507 

 

19

 

 

The Principal Select Savings Plan for Employees

 

EIN: 42-1520346 Plan Number: 003

 

Schedule H, Line 4i – Schedule of Assets
(Held at End of Year)

 

   Description of  Current 
Identity of Issue  Investment  Value 
Principal Global Investors Trust Company*  Collective investment trust  Lifetime Hybrid 2035  $43,177,958 
         
Principal Global Investors Trust Company*  Collective investment trust  Lifetime Hybrid 2040   183,212,298 
         
Principal Global Investors Trust Company*  Collective investment trust  Lifetime Hybrid 2045   36,997,219 
         
Principal Global Investors Trust Company*  Collective investment trust  Lifetime Hybrid 2050   132,790,307 
         
Principal Global Investors Trust Company*  Collective investment trust  Lifetime Hybrid 2055   32,362,868 
         
Principal Global Investors Trust Company*  Collective investment trust  Lifetime Hybrid 2060   24,253,809 
         
Principal Global Investors Trust Company*  Collective investment trust  Lifetime Hybrid 2065   3,024,043 
         
Principal Global Investors Trust Company*  Collective investment trust  Lifetime Hybrid Income   24,991,772 
         
Principal Life Insurance Company*  Self-directed brokerage account   4,163,091 
         
Principal Financial Group, Inc.*  1,945,050 shares of Principal Financial Group, Inc. ESOP   96,493,917 

 

20

 

 

The Principal Select Savings Plan for Employees

 

EIN: 42-1520346 Plan Number: 003

 

Schedule H, Line 4i – Schedule of Assets
(Held at End of Year)

 

   Description of  Current 
Identity of Issue  Investment  Value 
Loans to participants*  Notes receivable from participants with varying maturity dates and interest rates ranging from 3.25% to 10.25%  $18,885,249 
      $3,122,314,914 

 

*Indicates party-in-interest to the Plan.

 

21

 

 

SIGNATURE

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the administrator of The Principal Select Savings Plan for Employees has duly caused this annual report to be signed on its behalf by the undersigned hereunto duly authorized.

 

  THE PRINCIPAL SELECT SAVINGS PLAN FOR
  EMPLOYEES
  by Benefit Plans Administration Committee
     
Date: June 23, 2021 By /s/ Lisa Coulson
    Lisa Coulson
    Committee Chair

 

22

 

 

Exhibit Index

 

The following exhibit is filed herewith:

 

  Page
23 Consent of Ernst & Young LLP 24

 

23

Exhibit 23

 

Consent of Independent Registered Public Accounting Firm

 

We consent to the incorporation by reference in the Registration Statement (Form S-8 No. 333-178510) pertaining to The Principal Select Savings Plan for Employees of Principal Financial Group, Inc. of our report dated June 23, 2021, with respect to the financial statements and supplemental schedule of The Principal Select Savings Plan for Employees included in this Annual Report (Form 11-K) for the year ended December 31, 2020.

 

/s/ Ernst & Young LLP

 

Des Moines, Iowa

June 23, 2021

 



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