If the swirl of excessive fee lawsuits has you chasing down the retirement plan providers offering the lowest fees, hit pause. The fiduciary obligations of plan sponsors do not require committing to the options with the lowest fees. Instead, as a new wave of litigation exemplifies, plan sponsors are obligated to ensure reasonable fees—and investment returns that benefit participants.
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While it is essential to understand and periodically benchmark the fees associated with your company sponsored retirement plan, decisions cannot be made solely in favor of low fees. Investment returns must be considered too. NAPA reports that on the heels of the storm of copycat lawsuits alleging excessive fees, comes a flow of lawsuits bought by plan participants alleging poor returns. In other words, plan fiduciaries are being accused of selecting and retaining funds with low fees “without any consideration of their ability to generate return,” resulting in participants missing out on “millions of dollars in retirement savings growth.”
Of course no plan sponsor wants to end up defending themselves in a lawsuit alleging fiduciary failure. Even if nothing was done wrong, the cost of defense in an ERISA case is upwards of $600 an hour. Clearly, being sued by plan participants is also disruptive to business operations. Current litigation reminds us of the importance of prudently selecting, monitoring and when necessary, adjusting the plan’s fund options “in a single-minded manner with an eye focused solely on the interests of the participants.” With lots to do—and ultimately take personal responsibility for, it’s important for plan sponsors to protect themselves. Given the high standards of ERISA law, mistakes, oversights and lawsuits continue to occur—and even allegations can be disastrous. Why go it alone? Colonial Surety is here to help with an affordable Fiduciary and Cyber Liability insurance Pack that arms you with:
- Legal defense and coverage for penalties against claims of alleged or actual breaches of fiduciary duties.
- Defense against lawsuits and regulatory actions related to a cyber breach.
- Expert-led response, notification and crisis management services to prevent a cyber incident from spiraling into a disaster.
The annual cost of our Fiduciary with Cyber Pack is less than the fee for one hour of expert legal defense if a lawsuit or regulatory challenge strikes you and your business. Let’s get you covered, in minutes, today: Protection for Plan Sponsors.
Performance and Fees
Lawyers advise plan sponsors to make sure their plans have a clearly articulated investment policy, which includes a solid process for monitoring investment fund options—and investment provider costs. Meticulously document the process you and other plan fiduciaries use to make these choices. If a higher fee option is selected, record the rationale. As the National Law Review points out: “Plan fiduciaries might have good and legitimate reasons for selecting a particular investment option even though that option might involve higher costs than other available options or there might be periods of time during which the fund’s performance does not match the performance of a particular benchmark or index.”
Of course in addition to monitoring investments, it is also critical for plan sponsors to understand the fee structure of the retirement plan. In addition to the fact that it is in the best interest of everyone to avoid excessive fees while building savings, failure to adequately monitor plan fees is an ERISA breach—and a common mistake made by plan sponsors. When it comes to understanding the fee structure of a retirement plan, experts at Forbes share this advice:
The ideal expense ratio is 0.20% or less, while anything above 1% is indefensible and usually is representative of “revenue sharing”. Revenue sharing is defined as a deliberate overcharge at the expense ratio level used to pay the vendors of the plan such as a third-party administrator, record keepers, brokers, or financial advisors. These hidden overcharges come in the form of eroded returns and have been at the heart of a great deal of these 401k lawsuits. These fees are difficult to uncover and are typically buried deep within the Service Provider 401k Fee Disclosure Document, form 408(b)2…A 401(k) plan with a total “all-in” fee, where total costs are expressed as a percentage of assets in the plan, between 0.50% to 1% is typically okay….The Department of Labor requires employers to monitor these fees and failure to do so is considered a fiduciary breach….
Keep in mind that as diligently as you go about all of your plan sponsor duties, you can mitigate fiduciary liability risks—but never fully eliminate them. Under ERISA law, any individual involved in the management of a retirement plan can be held personally liable. Let Colonial Surety help you manage the inherent risks with our affordable three point protection plan: the DOL required ERISA bond to protect the assets of the retirement plan from theft; Fiduciary Liability Insurance to protect you and your assets from personal liability; and, Cyber Liability Insurance to safeguard your company and plan from covered losses and expenses in the event of a cyber breach. With Colonial, you can easily and quickly select and secure your affordable coverage package right now:
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