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Investment affiliates of Principal Financial Group Inc. violated federal pension laws in their management of a real estate account, according to a lawsuit that seeks class-action status in federal court in Des Moines.

Lawsuits were filed in late 2009 and earlier this year on behalf of individuals whose pension plans invested in Principal Global Investors LLC’s U.S. Property Account.

According to Principal Global Investors’ website, the account is a real estate equity fund whose portfolio consists of properties in the multifamily, industrial, office, retail and hotel sectors and provides moderate to low risk for pension accounts and other investors.

The initial lawsuits were filed in federal court in New York, but at Principal’s request were transferred April 30 to federal court in Des Moines.

Separate lawsuits were filed on behalf of four individuals who participate in pension plans regulated by the Employee Retirement Income Security Act (ERISA). Each individual – two located in New York state, one in Nevada and one in Washington – says that the account was to remain liquid and provide on-demand withdrawals and deposits.

Beginning in September 2008, the individuals attempted to withdraw funds from their employers’ pension accounts or have them shifted into other Principal-managed funds.

However, they were told that Principal had placed a hold on withdrawals and would put their requests in a “withdrawal queue” that would be honored on a first-come-first-served basis once the company decided it had enough liquidity to support the requests.

“By preventing ERISA plans and plan participants from withdrawing their money from the Property Account, Principal forced these investors to sustain staggering losses as the assets in the Fund declined in value,” according to the lawsuit filed on behalf of Dennis Mullaney.

“Even if Principal begins to honor these withdrawals in the future, investors have already been subjected to enormous losses as the value of the Property Account has steeply declined from a per share value of $704.32 on September 26, 2008 to $443.98 on November 30, 2009,” a few days before Mullaney’s lawsuit was filed.

Principal said in its first-quarter earnings report that it had net capital losses of $57 million, with some of those losses due to commercial real estate mortgages. Overall, the company reported net income of $190.8 million, or 59 cents per share, a 69 percent increase from first-quarter 2009 net income of $112.8 million, or 43 cents per share.

Principal Global Investors’ website indicates that any real estate losses are due primarily to an overall drop in assessed values as a result of the recession. The account reported net income gains in the fourth quarter of 2009.

According to Mullaney’s lawsuit, the “withdrawal queue” had a balance of slightly more than $1 billion in March 2009. (Dollar amount corrected May 11.)

The fund reported real estate investments of $7.7 billion in 2007 and $6.3 billion in 2006, according to an audit conducted by Deloitte & Touche USA LLP.

Mullaney’s lawsuit takes a stiff punch at Principal.

“Principal’s imprudent actions have caused the ERISA plans that offered the Property Account for which Principal served as the investment fiduciary to suffer potentially hundreds of millions of dollars of losses,” the lawsuit says. “Principal’s conduct was a gross dereliction of its fiduciary duties under ERISA.”

The lawsuits seek to create a class made up of ERISA plans and plan participants who attempted to withdraw funds from the property account from September 2008 to the present.

Principal Global Investors, Principal Life Insurance Co., Principal Real Estate Investors LLC, Principal Financial Group Inc. and fund managers are named as defendants.

The lawsuits seek a declaration that Principal violated its fiduciary responsibilities under ERISA and an award of actual damages, including making whole any losses suffered by pension plans and their members.

Additional hearings had not been scheduled as of press time.