Proof Of Wrongdoing: Unnecessary!

Apr 10, 2026

Can you be sued as an ERISA plan sponsor? Yes. What proof of “wrongdoing” is needed to bring a suit? None. How much will defense cost you if you get sued? Plenty. Does your ERISA Bond protect you in the event of a lawsuit? No. Retirement professionals point out that no matter what we do, we face the risk of getting caught up in allegations of mistakes and oversights related to ERISA plan sponsorship. We can, however, be ready to protect ourselves with this one-two punch: 1) strong documentation of all prudent decisions made for the plan and 2) specific coverage for defense.

Motion To Dismiss?

“There is nothing a plan sponsor can do to prevent a lawsuit from being filed.” That’s the bottom line, according to Eric Dyson of 90 North Consulting. As Dyson points out, when it comes to ERISA lawsuits, proof of wrongdoing is not even necessary to make a claim: “Plaintiffs’ firms do not need proof of wrongdoing. They need public data and a plausible theory. Form 5500 filings are mined every year. Recordkeeping fees are calculated per participant. Share classes are compared. Investment menus are reviewed online. Many complaints quote directly from publicly available filings.”

The precedent established in “big player” ERISA litigation has laid the path for more law suits, putting plan sponsors from smaller businesses at further risk, as attorney Bonnie Treichel of Endeavor Law, confirms: “Historically, there is the perception that only big plan sponsors could get sued—that being sued in the ERISA context was limited to the mega-plan space. One misperception about ERISA litigation is that unfortunately, it is no longer a single law firm…that is filing cases in the mega space. There are what are called “copycat lawsuits,” so there are more attorneys that are filing ERISA litigation cases.”

The bottom line is that even with great diligence, and outsourced plan services, a retirement plan sponsor can be sued, and that’s why part of taking fiduciary responsibilities seriously includes careful documentation of everything pertaining to the retirement plan. If faced with an ERISA lawsuit, documentation of prudent process is essential to getting the case shut down as quickly as possible. Dyson counsels that when an ERISA complaint is filed, preparation for the Motion to Dismiss “a critical early checkpoint in ERISA litigation”:

While it is reasonable to set a goal of avoiding a lawsuit, the plan fiduciaries are not in complete control of that option. The goal that is within control is positioning the plan to shut down any lawsuit early.

At this stage, the court assumes the plaintiff’s allegations are true. The judge is not deciding whether fiduciaries acted prudently. The only question is whether the complaint alleges enough plausible facts to move forward.

If the case survives this stage, it does not mean the committee breached its duties. It simply means the case proceeds to discovery—and that is where things become far more expensive and disruptive….

This is where litigation shifts from legal theory to operational reality.

Discovery typically involves years of emails, minutes, benchmarking studies, fee analyses, contracts, and communication with advisors and recordkeepers. Experts are retained. Service providers may be subpoenaed.

Cautioning that “memory fades where documentation does not,” Dyson urges retirement plan sponsors to be prepared to win a motion to dismiss with thorough records such as committee minutes, benchmarking reports, and service agreements that illustrate “alignment between words and actions” when it comes to questions like:

Why was this share class retained?
When was the last RFP conducted?
Did you personally review the fee disclosures?

An Ounce of Prevention…

With the ERISA pleading landscape shifting, and some allegations facing tighter scrutiny in the courts, it is now best practice for all retirement plan sponsors to be defense ready. 401k Specialist reminds us: “Even without trial, the time, cost, and distraction can span years….Strong fiduciary governance is not merely compliance. It is risk management.” Another important step retirement plan sponsors can take to manage risks is obtaining fiduciary liability insurance. Traditional business insurance, like general liability insurance, typically does not cover lawsuits related to the retirement plan. Nor does the Department of Labor’s required ERISA Fidelity Bond: for the protection of plan participants, an ERISA Fidelity Bond essentially guarantees that the plan will be made whole in the aftermath of acts of fraud or theft—which are not the same as fiduciary errors that can result in lawsuits.

Unfortunately, defense in an ERISA lawsuit costs over $600—per hour. This is an out of pocket expense for plan sponsors, and adds up quickly. To help, Colonial Surety Company offers an efficient solution. Our affordable All-in-One Package helps retirement plan sponsors manage their risks by including:

An ERISA Fidelity Bond: Ensures compliance with DOL bond requirements
Fiduciary Liability Insurance: Provides up to $1,000,000 in coverage for defense and penalties in the event of allegations
Cyber Liability Insurance: Includes $50,000 of coverage to address the DOL’s strict standards for response and notification services following cybersecurity incidents. (Colonial Surety Company’s Cyber Liability Insurance explicitly covers both the retirement plan and this business.)

Don’t wait for a DOL audit, a participant complaint, or a creative plaintiff attorney to allege you’ve made mistakes and accuse you of a fiduciary breach. Secure your business, your plan, and your personal assets today.

Fiduciary+Cyber Liability Insurance

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