Good morning and welcome to the Principal Financial Group's fourth quarter 2014 financial results conference call. [Operator Instructions] I would now like to turn the conference call over to John Egan, Vice President of Investor Relations.

Thank you, and good morning. Welcome to the Principal Financial Group's fourth quarter earnings conference call. As always, our earnings release, financial supplement and slides related to today's call are available on our website at www.principal.com/investor. Following a reading of the Safe Harbor provision, CEO, Larry Zimpleman; COO, Dan Houston; and CFO, Terry Lillis, will deliver some prepared remarks. Then we will open up the call for questions. Others available for the Q&A are Jim McCaughan, Principal Global Investors; Luis Valdes, Principal International; and Tim Dunbar, our Chief Investment Officer. Some of the comments made during this conference call may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act. The company does not revise or update them to reflect new information, subsequent events or changes in strategy. Risk and uncertainties that could cause actual results to differ materially from those expressed or implied are discussed in the company's most recent Annual Report on Form 10-K and Quarterly Report on Form 10-Q filed by the company with the Securities and Exchange Commission. Before we get to the prepared remarks, I'd like to remind you of an upcoming investor event in Santiago, Chile on March 10 and 11. Executives from our Latin American business will provide an update. This is a great opportunity to learn more about these businesses, and we hope you can make it. Information can be found on our Investor Relations website. Now, I'd like to turn the call over to Larry.

Thanks, John, and welcome to everyone on the call. This morning, I'll comment on three areas; first, I'll discuss 2014 results; second, I'll provide an update on the execution of our strategy; and I'll close with some comments on capital management. I'll then turn the call over to our newly appointed President and Chief Operating Officer, Dan Houston, for some comments on key growth metrics for 2014, followed by Terry with his normal CFO report. 2014 was an outstanding year for The Principal, with record total company operating earnings of $1.3 billion, a 24% increase over full year 2013 results. Full year net income was $1.1 billion, a 26% increase over 2013. Perhaps even more impressive than the record total company operating earnings is that each of our four operating segments had record earnings for the year. Our ability to achieve these strong results, while still facing continued macroeconomic volatility, reflects our scale in each business segment, the strength of our diversified business model and the ongoing momentum in our businesses. Since 2009, we've grown earnings per share at a compounded annual growth rate of 15%. We've done that predominantly through operating earnings growth, which drives a long-term increase in shareholder value and not relying on share buybacks to increase earnings per share, which can only have an impact for few years. In addition, two-thirds of our earnings are now generated from our fee-based businesses compared to roughly half five years ago. Our strong financial position has created a great foundation from which to grow for years to come. Total company net cash flows of $18 billion for the year contributed to record assets under management of $519 billion, which increased 7% over 2013, despite a $14 billion negative impact from foreign exchange rates. These outstanding results position us going…

Thanks, Larry. I'm excited about my expanded role and look forward to working with the teams on continued implementation of our strategy. The fundamentals of our business remain strong and we continue to build on our leading positions, providing continued momentum going forward. Following are some of the key growth metrics that contributed to the outstanding results in 2014. Full Service Accumulation full year sales were $8.7 billion. We continue to focus on striking the right balance of growth and profitability in this business. We had fewer large planned sales in 2014 than we've had in previous years, which led to a decrease in transfer deposits and net cash flows for the full year. To demonstrate that point, net cash flows from our small-to-mid size markets were 2% of beginning year account values in that space, in line with our expectations. With strong investment performance and key differentiators like Principal Total Retirement Suite, we remain confident in our ongoing competitiveness of the Full Service Accumulation business. Principal Funds had record sales of $20 billion in 2014, and the fourth quarter was the 20th consecutive quarter of positive net cash flows. At 8% of beginning year account values, Principal Funds' full year net cash flows were more than 3x the industry average. Principal Global Investors had record total assets under management of $314 billion as of yearend, driven by continuous strong investment performance and full year total net cash flows of $2.4 billion. Principal International reported assets under management of $115 billion at yearend. Record full year net cash flows of $13 billion were up 54% over 2013 and 68% on a local currency basis. We continue to see momentum build in our Asian businesses with 15% of full year net cash flows from this region, up from 6% in 2014.…

Thanks Dan. This morning, I'll focus my comments on operating earnings for the quarter and full year, net income including performance on the investment portfolio and I'll close with an update on capital deployment. The fourth quarter was a strong end to an outstanding year. Total company operating earnings were $324 million, up 13% over the prior-year quarter. Operating earnings per share of $1.09 were a 14% increase over fourth quarter 2013 results. Moving to Slide 6, you'll see that we normalized fourth quarter 2014 earnings by $0.02 or one-time tax items in our Corporate segment. On a normalized basis, earnings per share were $1.07, up 11% over a year-ago quarter. We also removed the one month lag from reporting of Cuprum results during the quarter. The earnings from the additional month were reduced by lower than expected encaje returns and additional investments in the business to support future growth. For the year, return on equity excluding AOCI was 14.2%. This is a 210 basis points improvement from a year ago. Organic growth contributed 150 basis points of the increase, as operating earnings growth outpaced mean equity growth of 6%. Our current return on equity excluding AOCI includes exchange rate movements in earnings, but not in the equity calculations. If similar to other companies with large international operations, we adjusted the average equity for the exchange rate movements, the return on equity would be 15.1%. Now, I'll discuss business unit results, starting on Slide 7, with the accumulation businesses within Retirement and Investor Services. Operating earnings of $168 million were up 12% over the adjusted fourth quarter 2013 results. Net revenue was up 5% over the prior-year quarter and up 10% for the year. Full year pre-tax return on net revenue improved to 34%. Full Service Accumulation operating earnings were…

[Operator Instructions] Our first question comes from the line of Sean Dargan with Macquarie.

Terry, I have a question about Slide 6 and the normalized items. If I add back $0.02 per share for tax adjustments, that still implies a tax rate in the high-teens, which is below your 2015 guidance of 21% to 23%. Can you just discuss what was going on with the tax rate and if the 2015 guidance still stands?

I'll just have Terry take that.

You're absolutely right. It's a little bit lower than what we had anticipated in our outlook call. We still think that that 20% to 22% is a good effective tax rate for the overall organization. However, if you look at what happened at the early part of this year, we had some true-ups in the prior year. So if you were to adjust for that, you'd be around closer to 20% for the year. So we still think that that's a very good rate, taken into consideration the adjustments that we had in the fourth quarter in the Corporate segment.

And then if I could just ask one follow-up about Liongate. I'm just wondering what the thought process and impairingness was? And considering that you seem committed to doing further M&A to deploying capital in that manner, how can we have confidence that we're not going to see more impairments in these acquisitions you're making?

Sean, I'll make a couple of general comments and then have Jim comment specifically as it relates to Liongate. First of all, again if you go back and look over the longer course of history, I think that our success with our asset management boutique acquisitions has been really second to none. For example, we mentioned last quarter, the additional purchase of an interest from 70% to 95% in Columbus Circle Investors and that's the boutique that we've grown from under $4 billion to $16 billion over the point in time that we've had it. I could give you similar statistics around Spectrum and other asset management boutiques. So the challenge as it relates to goodwill often is actually in the early years after you acquire a boutique, because if the macro environment changes, the way accounting rules work, you run closer to the edge so to speak, and in fact the hedge fund of funds business has been a bit of a troubled space in recent months as there's been a lot of volatility and kind of a lot of churning around in the hedge fund space. So again, my emphasis here, Sean, would be to say that I think Jim and his team have done outstanding job over the longer term and Liongate is actually more of the one-off circumstance. So I'll ask Jim to cover that for you now.

Yes. Sean, as Larry said, this is a portfolio and the IRR on the portfolio of boutiques ranges almost all of them from low-teens to high-teens. So it's been one of the best ways of deploying capital that we have had available to us. The hedge fund of fund space has had headwinds as Larry described, and that together with some performance glitches in 2013, which since have been fixed, the performance since then is pretty strong, led to some losses of assets and revenues, and that's what led us to impair this particular asset. In terms of the process of impairment, thinking of how this might affect other boutiques, this one is, it's just over 50% stake, and so was accounted for on the equity method rather than consolidated, that means from an impairment it's looked at legal entity level, and that was really the background to the impairment we had on Liongate. With the growth in all the other boutiques and with the only other equity method boutique being Finisterre, which actually has grown very strongly, has almost doubled in assets in the three years we've been associated with them. So I think I'm pretty confident that the strategy remains sound and we don't see any other impairments on the horizon on the evidence at the moment.

Your next question comes from the line of Yaron Kinar with Deutsche Bank.

Want to go back to the comments on withdrawals and sales in FSA, and maybe get a little more color as to what's driving, what seems to be a little bit of weakness there, at least seasonally speaking. I understand there is more pressure from the large case market, but at the end of the day I thought that pressure was already there in the last few quarters, so was little surprised to see numbers maybe a little bit below expectations.

I'll make a few comments, and again, I'm sure Dan will want to add. So first of all, as it relates to fourth quarter, recognize that sales results in fourth quarter for FSA were actually quite good. They were at $2.8 billion bringing the year-to-date $8.7 billion. Now, while that $8.7 billion is a little bit below what we might have expected going into the year, I would also say that there has been, as a general perspective, there has been a little less money moving in the marketplace. And I can tell you as somebody who has been involved in the Full Service Accumulation business for more than 30 years, we'll just leave at that, this is something that you always see. When you have a very strong equity market like we had in 2013, there will be fewer assets in motion. It just inevitably turns out that way. I think that's more of a psychological factor among plan sponsors and advisors than anything else. So on the flip side, our 2014 was a second best year for retention of existing Full Service Accumulation cases that we've ever had. So you do have sort of parallel dynamics that have been kind of going on within the FSA market. I think it's my judgment and Dan can offer his opinion here in sec. It's my judgment that actually that kind of competitive environment and that kind of pricing environment has actually been more rational in 2014 than it has been in prior periods. I think in prior periods, coming out of the financial crisis, everybody was sort of scrambling given the depth and pain of the financial crisis. Everybody was kind of scrambling to rebuild their retirement business, and frankly, we were part of that as well. But I think post 2013 and 2014 things have now sort of settled down and the dynamics of the Full Service Accumulation business have sort of gone back to normal. We are seeing salary growth. We are seeing new participants added. We are seeing increased deferral rates. So the normal factors that drive FSA revenue increases are more solidly in place. So I wouldn't want you to get too distracted by a quarter or a year. I think as we said in our comments, all the elements of health are very, very strong in FSA. So with that, I'll ask Dan to comment.

And maybe just before that, just to clarify, when I talked about weak sales, I'm talking for the fourth quarter, not relative to other quarters of the year, so seasonally adjusted.

I would say the fourth quarter sales are actually relatively strong compared to a year ago. I think you can identify a couple of areas. One is that, for the full year we ended up having 11 large plans over $100 million a year ago versus six this year, so again disciplined underwriting on those plans. The other area where we saw some withdrawals was relative to large M&A where we may have had a smaller piece of the pie, the acquiring company was maybe two or three times our size. Larry spoke specifically to the issue of second best retention year ever; reoccurring deposit of 10%, we had good matching contributions, strong profit sharing contributions, new hires are in that mix. Whenever you can hold withdrawals to 6% on a 12% increase in account values and still retain your in force business and be more selective on choosing new plans, I think it speaks to the strength of the product line. And lastly, as we said in the script, we did have net cash flow for that SMB market right at 2%, well within the range. And that where the shortfall really falls is in that large $100 million market, which we know is volatile. Last comment I would make is, you could sell two or three large plans in the fourth quarter of this year and we probably wouldn't be sitting here today having the conversation about sales or net cash flow. And so it really does boil down to being selective and more particular about the plans we want underwrite. Hopefully that helps.

And then my second question probably is best for Terry. So looking at the 10-year yields-to-date, about 100 basis points below of the yearend assumption that you came out at the time the outlook, and I realized during the prepared commentaries that overall the fee business is less sensitive to rates, but at the end of day there is some sensitivity. Maybe you can help us think about this sensitivity both the balance sheet and income statement?

Terry, you want to make some comments?

As we talked about in the past, the sensitivity that the Principal has to the lower interest rate environment is probably a little bit less than what we've seen in some of our insurance peers, because of the strong asset liability management. As you said our fee-based businesses are 60% to 65% of our earnings, albeit there are some businesses that are affected by this, life business, our spread businesses. It does have a little bit of drag as the interest rate environment goes down, what we are seeing on the 10-year treasury. Although the 10-year treasury is not necessarily the only point that we look at. It's across the yield curve, and so as that yield curve flattens out it will have some other impact on us as well. So I guess, we can say that the drag that we'd have from our current interest rate environment maybe had a little less than 1% or so in terms of earnings for next year in 2015. Now that being said, the other part of that is the impact that it would have on sales. As you can see, we could have some drag on future sales and the fixed deferred annuity area, which we've considered somewhat opportunistic. But one of the things that's been counter to that is our Full Service Payout business that taking over that closeout business. We actually have our highest quarter ever in the fourth quarter with $464 million of earnings. And so that's an interest-sensitive business as well. So we do see that the lower interest rate environment will have an impact on us, albeit it will a little bit lower than what you've seen in some of our insurance peers.

Your next question comes from the line of Ryan Krueger with KBW.

First on FSA, I was hoping to clarify one thing. It looked like the rate of transferred deposits relative to sales was lower than normal. Was there some aspect of timing where some sales didn't hit transfer deposits that you'd normally expect this quarter?

This is Larry. There was. So I'll have Dan cover that.

Yes, Ryan, good catch. We did have a sale that was reported late in the fourth quarter of 2014 here, it will fund in 2015. So as you point out, it's just a little bit lumpy. It's just a matter of which quarter it fell into.

Can you quantify how big that sale was?

I'd probably just not try to quantify that at this point in time. But it was a decent size plan, well in excess of $100 million.

I think, again, when you're interpreting, therefore when people kind of try to interpret into some degree over-interpret the net cash flow in a business like Full Service Accumulation. I mean literally it can be the decision on planned sponsors, do I send Principal their money on -- the transfer deposit on December 28 versus January 2. And that can be the difference in whether net cash flow is negative or positive. So that's why again, the real way to think about this business is to look at in on sort of either a trailing 12-month basis or some sort of calendar-year basis, and not try to assess whether some trend in a particular quarter represents a new trend. I would caution anyone again trying to do that for this kind of a business.

And then I wanted to revisit the preferred stock that you can call in mid-2015, which seems to pretty likely to be a good economic decision to do that. But curious how you're thinking about the potential funding for doing that?

I'll maybe ask Tim. Tim not only oversees the investment portfolio, but also heads up capital markets and works with Terry around all of our capital structure. So I'm going to have Tim cover that for you.

Yes, right now we are reviewing plans for the preferred securities that, as you said, are open to prepayment or open to payment in mid-year. We look at that just in terms of what the after-tax cost to the organization is in different ways that we can fund that. But we haven't made our plans specifically for those yet. We are looking at that and view that we have a fair amount of flexibility. We don't need to call them, but we certainly can, if we want to.

And am I correct that in your outlook guidance that that did not contemplate doing anything with those?

That is correct. It did not contemplate paying those off.

Just to add a really quick comment to that. Again, the existence of preferred stock on our capital structure is, it really goes back again to the days when we were far more of an insurance company than this sort of investment management company that we are today. And I think when you look at capital structures from those that are asset management or investment management, you typically wouldn't see preferred stock in their capital structure. So that's just to note that. And that's another part of our thinking, as we have that opportunity to take those out.

Our next question comes from the line of Seth Weiss with Bank of America.

My question is for Dan, and you commented about the strong fund flows in Principal Funds three times industry average, I believe, for 2014. How long do you think that pace could continue for in terms of outperformance that is?

Again, I'm sure Dan want to add some comments. Again, the job that has been done by our team around the mutual fund business over the time since we bought Washington Mutual in 2007 has been really, really extraordinary. And I think we're now in our 20 quarter, maybe it's our 22 quarter of positive net cash flows. And what's really been interesting is to see that we've actually been, maybe not only continuing to outperform, but maybe increasing the level of outperformance. And it's a combination of really two things. One is, I think its great product development. And in general, again, we've commented on our outcome based strategy for our retail funds. And secondly, of course, it's based on having outstanding investment performance, which is predominately to the credit of Principal Global Investors. So we do have a number of new product launches. We launched seven new products in 2014. We're going to launch a number of new products in 2015. So I would have a full expectation for sales in 2015 that we're going to see at least a decent increase in sales, albeit when you get to the level of $20 billion in sales, sometimes it can be a little difficult to put up big increases against that. But I certainly have every expectation that we're going to continue to see very strong flows there. And having put enough pressure on Dan, I'll let him comment.

Yes, I share you enthusiasm, Larry. We'll have a strong lineup. And as Larry pointed out, we did have a very strong year for net cash flow, that is 20 consecutive quarters. What's probably most exciting to me about the success we enjoyed this past year, it wasn't one fund, it wasn't any one asset class, so it was collectively across the board with real estate, fixed income, equities, asset allocations and the hybrids, and adds with the existing portfolio. And again, Nora Everett and her team have worked very closely with Jim and his team to develop this outcomes-oriented strategy, solving for problems related to income and growth and waiting in the wings inflation solutions. This is very popular among advisors. They look at this as being very favorable in terms on bringing to their customers, which is why you noticed that we moved up one notch among the advisors sold funds. As Larry pointed out, we've got seven new products rolled out throughout 2014 across real estate, emerging market, credit opportunities, additional lifetime hybrid as well as small company stocks, again across the whole range of asset classes. And so I remain very enthusiastic about our ability to grow our funds business.

Yes, and I know Jim wants to add a comment too.

This is really just a comment about what happens next, since you are asking why have we been so strong and where does it go next. I would point out that in the last year or two the market has had very little appetite for active equity strategies in general. We have in that time developed what I would argue as one of the best ranges of active equity strategies in the industry. So as appetite changes, perhaps towards emerging equities at some point or towards small and mid-cap equities, I think we have a very good range to actually pickup the momentum rather than lose it, as client attitudes and preferences shift.

I hope that helps.

And if I could just ask one question, on the expense side of FSA, margins likely to come down in FSA, as expense growth outpaces net revenue growth. Can you give any granularity on that? And if this should be a little bit of a multi-year phenomenon or if we should just expect '15 to be a higher expense year and then level-off from there?

Again, I think we spoke to that a little bit certainly in the outlook call, and I will have Dan comment in a minute. I want to again just take a step back and kind of remind everybody on the call about the high level of performance that is already embedded, if we're talking about a sort of 30% to 32% kind of a pre-tax return on revenue. That is in and of itself a really outstanding result when you think about it. I mean that's again the equivalent. If you were to put that in ROE, return on equity terms, I mean that's an ROE that's in that mid-to-high 30% range. And there is an upper limit, as to how far you can drive margin. So I think that any of our shareholders would be very, very happy, if we have a five, 10, 15, 20-year period, where we can demonstrate a 30% to 32% return on net revenue over that period of time. That is simply outstanding performance that probably can't be really matched by any other type of business within financial services. So that's just sort of a background comment. And again, looking at trends from 2014 to 2015 or whatever, whatever, we're going to be influenced by DAC and other things that are a bit variable and non-recurring. So again, don't read too much into that. Think broadly and more longer term about the return that is coming out of that business. So, Dan, you want to comment?

When I think about FSA, I think it's probably one of our strongest areas for process improvement and driving cost out of the business, and at the same time maintaining strong customer service scores by both our advisors' participants and planned sponsors. Fourth quarter was a little bit lumpy. It had some expenses in there. When you parse it out, you find out, if you take for the quarter comp and other less management fees, we're actually down by about 2%. So again, good expense management. When you look at the one-offs here, and again I do not view these as a systemic, it's around some of the true ups around DAC, some commission, printing, postage, security benefit, sales comp. We rolled out a new mobile application and promoted that. We had a new landing page for participant education, both launched in the latter half of 2014, which showed up as a little bit higher expense. But overall, as Larry points out, very, very expense minded and disciplined about making sure that we manage these very aggressively. We'll always have some higher variable costs, as sales increase. You saw that in the mutual fund line. You also saw that in Specialty Benefits, where you don't have the DAC incapabilities that we do in most of our Full Service Accumulation. Hopefully that helps.

Your next question comes from the line of Jimmy Bhullar with JPMorgan.

So first question on the PGI business. The unaffiliated flows I think were negative this quarter and part of that might have been Columbus Circle, but maybe if just Jim could give us a little bit more detail on that. And then secondly on share buybacks, you outlined the $800 million to $1 billion in deployment goal, and I think your dividend is based on the present rate are going to be close to $430 million or so this year than the AXA deal's $335 million. So it implies that what's left for deals and share buybacks is less than $250 million, and then you've got the preferred stock potentially being called. And also, my question was you didn't buyback any stock in the fourth quarter, is it possible that you don't do any buybacks in 2015, if you do find additional deals and/or if you retire the preferred stock?

So I'll try to give you a little bit of insight on the first one. And I'll have Jim cover the unaffiliated, and then if Terry wants to or Tim wants to add something, they can certainly to do that. First of all, I think on your second one, Jimmy, I mean, I think certainly first of all I agree with all of your math. And so I think what you would expect for share buybacks, if that's the specific question for 2015; generally speaking, I think what you would expect would be, and we've said this many, many, many times, our first priority in terms of share buybacks is to try to make sure we cover the anti-dilutive portion. So we would do share buybacks generally speaking with the idea that it would at least keep our share count flat. And we gave outlook in early December on what we expected the share count to be. As I said in my comment, Jimmy, we are seeing, have been and continue to see more opportunities for the kind of M&A that we like, either within the asset management space, maybe within the international space, maybe within the retirement space. We're actually seeing more of that than we have seen in a very long-time. And again, a lot of that is coming from the restructuring that is having to go on by some very, very large financial services companies, as they sort of remake their strategy, post the financial crisis. So I think it's in the interest of building long-term shareholder value for us to make sure that we're looking at every one of those opportunities. And when we can make very nice accretive acquisitions, like we think we will do with the AXA Hong Kong acquisition, we remain very, very interested in that. So I would expect again kind of limited share buyback. Certainly want to do the anti-dilutive, whether we do anything beyond that, probably really will depend on our success kind of in the M&A space. And so with that, I'll let Jim comment on unaffiliated.

In the quarter the main negative on the unaffiliated flow was in our equity boutique. If you add up Columbus Circle or it in Principal Global equities, you had a net outflow of a bit over $1.5 billion. Most of that is client allocation away from active equity strategies, and particularly active core equity strategies. There was one particular piece, which you allude to in Columbus Circle, where about half of Columbus Circles' lost assets were related to a portfolio manager departure, in fact our hedge fund portfolio manager. The clients were taking some really quite big profits that they've made over the last two or three years. Some times you get a few hundred million flowing out with a big profit, and it's hard to say that that's bad for the clients. They are locking in profits. Our challenge is to find the next idea to make clients money worth. So that's the outflows. In terms of the inflows, I am delighted with, for example, Finisterre Capital, who just this week got an award in London from the industry for the best emerging market hedge fund of the year. They're in emerging debt and are seeing quite strong growth. Other high-yielding strategies, including Spectrum with preferreds post with high yield. Real estate has been a very much in-demand area. So it's a balance of some pretty big outflows on the active equity side and some inflows elsewhere. I think if I were to sum up the year as a whole though, I would say that I am very pleased with our new sales that were once again over $16 billion in these active specialty strategies for the non-affiliate business, very similar to the previous year. So sales are not the issue. I am a little disappointed or somewhat disappointed in our retention. It's fair that the clients take the money out of these particularly active core strategies. Our challenge and our management is very much on it and to make sure that those same clients look at our high added value specialties. So we are making vigorous efforts to improve the net flows. And really the focus is on retention and making sure that those clients are coming out active core strategies and see the interesting stuff and the high performing things we're doing.

And Larry, just following up on your optimism about the M&A pipeline. Can you just briefly discuss the businesses and regions that you're targeting and where you see the most opportunity?

Well, again, as I said, I think that there is opportunity in the U.S., but I think we are seeing more opportunity in asset management and in international. And the other thing that I would say, and by the way within international, I think it is a little bit at the moment, I think, the trends has been it's a little bit more in Asia. And again, this is often times coming much like the AXA acquisition, Jimmy, this is coming more from European financial services companies who are, as I said earlier, still sort of recrafting their strategy, post the financial crisis. And again, often from the standpoint of pressure from regulators, trying to kind of simplify their business model, which can be a benefit for us. So again, that's going to continue to be an opportunity and we're going to continue to prioritize that. The last thing I'll say is, there is also of course the opportunity, Jimmy, that we can much as we did with Columbus Circle in terms of buying a bigger percentage of an asset management boutique, we also have potentially the same opportunity with some of our other international joint ventures as well. So that's another one that some times we don't mention as much. But that's a great opportunity, because these are already high-performing, highly-profitable companies, where the incremental return on capital is very, very high. So we also continue to look at that opportunity.

Your next question will come from the line of John Nadel with Sterne, Agee.

I had one quick follow-up for Terry. There was a question about the tax rate. And just thinking about the 21% to 23% range that I think you provided in your outlook for 2015, I believe you mentioned in response, 20% to 22%. I just want to make sure that that was a 2014 comment or has the outlook changed a little bit for the better?

No, John, I think the 20% to 22% now is probably the run rate that we would see for '14 as well as going into '15. As you take in effective tax rate, a federal rate of 35% to get down there, you have a benefit from some dividends we receive. We also have equity method of accounting that has a play on that. We have tax favored investment. We also have foreign tax credit as well. And then the redeemable non-controlling interest impact on our business. So that last one is what drove down that 1% from that 21% to 23%, and that's somewhat volatile as we go into the year. Now, as we talk about effective tax rate, first quarter of each year we have to true-up for what happens in the prior year and that goes positive and negative adjustment to taxes, but we do adjust our accruals. So to the point that we were making earlier, the lower effective tax rate that we're seeing at this point in time, in large part is due to a true-up, a positive lower tax rate impact on from 2013 that we reflected in 2014. Hopefully that helps.

And then looking at Principal International, if I just look at the combined net revenue in 4Q, and I don't want to get overly focused on a single quarter to your point, Larry, earlier about trends, but that combined net revenue is only up 5% year-over-year in the fourth quarter. And that's despite, I'm guessing, there is some benefit from that extra month of Cuprum in that number. That's a huge decline in terms of the growth rate from the first nine months, which I think was up 17% or 18% year-over-year. So can you give us some sense for what drove that? Is it really just primarily currency? And how should we think about that relative to your outlook, I think which was for 8% to 10% growth in 2015?

I think there is two factors at work. I think there's two factors at work there in the current quarter. One is FX, which you mentioned. The other one that is at work there is encaje return, which were certainly more challenging in fourth quarter than they were in third quarter. So again, as I said before, trying to judge net revenue growth in any sort of one quarter is a little bit difficult. Having said that, if you asked us kind of normalizing for everything, adjusting for local currency, adjusting for encaje, adjusting for everything else kind of what's the underlying growth and run rate of the business, our answer would be in that 15%, 16% range on a local currency basis and adjusting for encaje. So I hope that helps.

And then the last one I've got for you, real quick, if I can sneak in and it's a bigger picture question. Over the last several years there's been a lot of talk, obviously with oil down where it's at about, how big a driver of employment growth in United States effectively the energy sector has been. And I guess, now with oil down where it's at and a lot of capital investment getting cut, likelihood that there is going to be some -- well, it's already started, but likelihood that there will be more employment cuts. I guess, I am thinking bigger picture. Have you guys thought about this, how big of a contribution has, that energy revolution, if you will, in the U.S. played toward your growth in the last four or five years, and thus how big of a potential pressure point might it be if this plays out?

Well, there is lot backed in there, John. So let me make a few comments. Jim, I know would want to comment as well. I have been a little bit surprised as I sort of watch the market press and other things commenting on the drop in oil prices, the extent to which it's taken on an overly negative term. I actually have little doubt that on the net-net basis, the decline in oil and energy prices is a positive thing for the U.S. economy. Now, if you are in the oil business or in the energy business, it could be very painful to you. And to your point there are going to be layoffs and other actions taken within the oil and energy sector, but if you think about how pervasive falling oil prices are in terms of helping consumers have more money in their pocket, which helps all retail companies. If you think about the reduction in cost for manufacturing and then you think about all of the manufacturing entities there are throughout the United States. Again, I have little doubt that net-net it actually will help to stimulate in some way a job growth in the United States. So I think some of the decline in oil price is kind of secular, but certainly I don't necessarily think we're going to be looking at $45 oil for the next 10 years. So oil will find its natural sort of landing spot somewhere between the $100 and the $45 and that will happen over time. So there is going to be adjustments in the energy sector, adjustments in the oil sector, but I think there will be more than compensating adjustments in other portions of the economy. And with that, I'll turn it over to somebody who knows a lot more about it than I do, which is Jim McCaughan.

First, I'd just want to say, I appreciate that commentary, Larry, very much. Thank you.

Thanks Larry. You're too kind. I would point out that we are very diversified across the whole economy by industry and by location. So the stimulus that Larry mentions will be important and probably a pretty big majority of the areas where we have business. So our sensitivity to jobs is not something that would cause us too much concern at the moment. Indeed, I'd point to a piece of research that's been mentioned fairly widely that was done by our economics area and came out about two weeks ago, which was really about the tightness of the labor market and where pay rises are within all the data for over 3 million plan participants that we regularly see. And that was suggesting that within that small midsize business area there is better pay growth than there is in the economy as a whole. And we think that's actually a very optimistic sign that not only are those clients in general are doing pretty well, but the labor market is tightening in that area, and that will be good for the kind of businesses we have.

Our final question will come from the line of Steven Schwartz with Raymond James & Associates.

Larry, I'd like to go quickly in a different direction. The administration presumably in support of the DOL recently published the letter talking about fiduciary responsibilities and qualified plans. They did point to potential issues that they saw in 410k and other defined plans. I was wondering if you can maybe comment on regulatory issues out there.

I can, because I can tell you that both Dan and I along with Greg Burrows and our government relations' team in Washington spend a lot of time on this. Also as you know, I am the 2014 Chairman of the Financial Services Round Table, which is one of the trade organizations that works very hard on this issue and many other issues. The issue, the specific one, Steven, that you mentioned relative to the Department of Labor considering whether additional kind of rules are necessary around how advisors and pension providers interact with plan participants. Again, as you know, but others may not on the call, this has been an issue that's been sort of bubbling for a number of years. I think bubbling for a three or four or maybe even five years. And lately, there has been perhaps a belief as a result of memo that was written inside the Whitehouse by National Economic Council and made its way into the public sector that the administration and the Department of Labor maybe thinking about taking some action here. I would say that from my more detailed conversations and they include a conversation outside and inside the Whitehouse that I have had on this topic, I really believe the primary area, Steven, that they are looking at is in the area when participants terminate or retire and they move out of the 401k plan into a rollover IRA. There is some focus on the question about how you provide information and education to plan participants inside the 401k, but the primary focus, I think they have is on the rollover IRA situation. Again, we feel strong, and I think the industry feel strongly that participants need access to good information and good education in order to help them…

Larry just a follow-up. The letter also concentrated on revenue sharing. Is that a factor in your business?

Well, in a way, Steven, I think that issue has been sort of wedded and dealt with. And I think for the better, because I think today the disclosure that is out there today around revenue sharing is pretty complete. And we've always believe and we definitely believe that transparency is the best medicine, if you will. So we've always had a lot of transparency around all things, revenue sharing, and I think now the industry is in that mode as well. So I think while there maybe sort of some questions or comments in that particular treatise on that. I don't think that's really the focus for the DOL. I think it's more in the relationship between financial advisors and plan participants.

We have reached the end of our Q&A. Mr. Zimpleman, your closing comments please. End of Q&A

Well, thanks everybody for joining us today. When I just say that again we look at our 2014 results and we're very, very pleased overall with the year and we're very, very pleased that 2014 was a year that we had not only record earnings for the company, but record earnings for each of our business segments. We do see momentum has been very strong behind every one of our businesses, that again as a result of great investment performance and very good day-to-day execution by our team. So again, thanks for your interest. We look forward to seeing many of you on the road in the near future.