A recently filed ERISA lawsuit underscores a scary reality: essentially anyone, and everyone, involved in the management and administration of a retirement plan can be personally named in the allegations. In addition to sweeping the “named fiduciary” into costly and time consuming litigation, allegations are impacting many others, including, for example, the administrator signing off on Form 5500.
Not Just The Listed Plan Fiduciary…
Under the extensive and high standards of ERISA, the “listed plan fiduciary” is not the only individual who can be held responsible for errors, actual or alleged, related to a company sponsored retirement plan. Law experts provide this reminder:
An entity is a fiduciary with respect to an ERISA plan to the extent that it has any discretionary authority or discretionary responsibility in the administration of the plan. Anyone who exercises discretionary control or authority over the plan’s management, administration, or assets is an ERISA fiduciary even if that person is not listed as a plan fiduciary by a benefit plan. In a situation where an employer answers beneficiaries’ questions about the meaning of the terms of the plan…, it engages in plan administration, and therefore acts as a fiduciary.
Indeed, the list of individuals named in an ERISA lawsuit can be lengthy. For example, the National Association of Retirement Plan Advisors reports that in yet another excessive fee lawsuit, recently filed in New York, allegations that plan fiduciaries failed to meet their basic obligations personally name the plan sponsor, each member of the Board of Directors, each member of the plan’s committee and “even the signatory of the Plan’s annual Form 5500.”
Although allegations are not an automatic indication of wrongdoing, individuals personally named in lawsuits quickly learn that mounting a defense becomes disruptive and costly-–and cases can drag on for years. Neither diligent effort, nor the ERISA fidelity bonds required by the Department of Labor (DOL), provide defense in the face of lawsuits or investigations. Experts agree that proactive protection is the wisest move, and Colonial Surety is here to help with affordable Fiduciary Liability Insurance. Armed with this coverage, for a few dollars a day, you’ll have coverage for 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. Cyber Liability coverage is included at no extra cost, providing additional protection–for the plan and your company–against regulatory actions related to data and privacy, as well as expert response services.
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An Ounce of Prevention…
In the spirit of this time honored adage, it’s useful for retirement plan sponsors and administrators to stay on top of the allegations that are being made in ERISA lawsuits. Nevin Adams shares this summary of the recent excessive fee suit in New York, which “challenges the imprudent selection of share classes, the poor selection of a stable value offering AND exorbitant recordkeeping fees,”:
- First by offering and maintaining “higher cost share classes when identical lower cost class shares of the same mutual funds were available,” which the suit says “is one of the most common and well-known example of an imprudent investment decision.”
- Secondly, the suit claims that the defendants “wasted participants’ money by failing to appropriately select and monitor the Plan’s stable value fund” when “substantially similar products were available from other providers that would have provided far higher returns to the Plan participants.”
- Thirdly, the suit claims that the defendants failed to monitor the Plan’s fees and expenses, and that “as a result, the Plan kicked back payments to recordkeepers and other non-parties from the retirement savings of …employees in excessive amounts.”
Claiming that the fiduciaries associated with the plan “did not have a prudent process for selecting or monitoring the costs,” and that “substantially similar products were available from other providers that would have provided far higher returns to the Plan participants,” the lawsuit requests a jury trial, stating that losses to plan participants could have been avoided had the fiduciaries been more “competent, prudent and diligent.”
Daniel Aronowitz, Managing Principal of Euclid Fiduciary underscores the difficulties plan fiduciaries face during litigation, pointing out: “You can have the best process in the world, but plaintiff’s lawyers are good at making defendants look dumb if a case gets to trial. You have to prove a good process to the judge and it can be very difficult to do….” As copycat litigation cases pile up, protection is best. With Colonial Surety’s affordable coverage, in the event of claims of alleged or actual breaches of duty in connection with the employee retirement plan, you’ll have defense costs and penalty limits up to $1,000,000. Uniquely, Colonial even includes Cyber Liability Insurance, locks in multi-year rates and offers installation payments. Cover yourself, today:
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Pension plan professional?
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Colonial Surety Company is rated “A Excellent” by A.M. Best Company, U.S. Treasury listed and in business all across the country. Serving customers since 1930, we are 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.