Analysis of nearly 800,000 Form 5500 filings reveals that the majority of retirement plan sponsors have at least one “red flag violation.” Since both regulatory compliance and fiduciary shortcomings are a very big deal under ERISA, plan sponsors will want to double down on their diligence. Being held personally liable is a real possibility, so securing fiduciary liability insurance is also essential.
At Risk: Fines, Penalties, Fiduciary Failure…
Abernathy Daley 401k Consultants analyzed recent Form 5500 filings by 764,729 retirement plan sponsors, and determined that only 16% were free from red flag violations, which the firm defined as “infractions, fineable offenses, fiduciary failure, or plan malpractice.” The analysis categorized the red flags as either regulatory infractions or egregious plan mismanagement, and concluded: “Regulatory infraction red flags were found at 43% of companies across the U.S., and egregious plan mismanagement red flags at 76% of U.S.-based companies … .Therefore, the consultancy states, in its opinion, more than 600,000 American companies could be at potential risk of fines, legal penalties and fiduciary failure.”
The analysis underscores the responsibilities that both plan sponsors and administrators have in safeguarding the retirement savings of employees. As Abernathy Daley’s leader, Matthew Daley sums up: “Retirement plans represent a fiduciary duty toward employees and provide an essential competitive advantage for talent acquisition and retention….Yet, these alarming findings clearly show that administrators are not keeping plan sponsors out of harm’s way and plan sponsors are not offering their employees a bulletproof retirement plan.” The consequences of regulatory red flags include “civil legal penalties, discovery leading to trial, or both.” Among the plan failures the Abernathy Daley analysis considered were, “Not offering qualified default investment alternatives,” and “An insufficient fidelity bond….”
Penalty of Perjury?
Annual submission of Form 5500 is the way retirement plan sponsors provide both the Department of Labor (DOL) and the Internal Revenue Service (IRS) with information on how the plan is doing. Form 5500 is a public record, which can be scrutinized ever more easily with the advancement of artificial intelligence. In short, errors and omissions reflected on Form 5500 are a fast track to investigations, audits and lawsuits. Even sign off should be taken seriously by both the plan sponsor and plan administrator, as attorneys from Groom Law Group and CAPTRUST remind us: “Form 5500 is filed under penalty of perjury, which means that anyone signing should, at a minimum, review the form at a high level to be sure that nothing in the form is obviously inaccurate.”
Plan sponsors should not confuse their DOL required ERISA Fidelity Bond with protection for themselves: an ERISA fidelity bond protects the plan and participants–not the sponsor. The only way plan sponsors can reduce the personal risks associated with their fiduciary duties is by obtaining fiduciary liability insurance.
Here’s help: Colonial Surety Company has affordable protection for plan sponsors from businesses of every size. For a few dollars a day, our Fiduciary+Cyber Liability Insurance Combo protects you with defense costs and penalty limits up to $1,000,000 if faced with alleged or actual breaches of duty in connection with the employee retirement plan. Plus, at no extra cost, the Cyber coverage addresses Department of Labor recommendations, explicitly covering the business and the plan in the event of a cyber breach.
Don’t wait for the uh-oh moment to hit. In minutes, you can protect yourself, your business and the plan:
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Serving customers since 1930, Colonial Surety is the trusted source for the pension industry to secure legally required ERISA bonds, fiduciary liability insurance and cyber-liability insurance. We help safeguard plan sponsors, pension professionals and financial advisors — and keep their businesses compliant — with pain-free, efficient, and friendly service every time. Colonial Surety Company is rated “A Excellent” by A.M. Best Company, US Treasury listed and in business all across the country. Need help? Our knowledgeable, New Jersey based ERISA service team is available Monday-Friday, 8:30am-5:30pm EST at 888-383-3313 and via email: erisadept@colonialsurety.com.