Retirement plan sponsors can easily find themselves going down the rabbit hole of ERISA requirements. Even the lingo can be head tripping. Given what’s at stake though, —-a retirement account is often the biggest asset an employee has–it’s best not to lose touch with the whole purpose of sponsoring the plan in the first place. Examining the “why” behind ERISA duties turns out to be very motivating.
Get Centered On Purpose
Simon Sinek has popularized the importance of starting with why when it comes to work that matters—and sponsoring a retirement plan is certainly work that matters. At “Be More Than A Fiduciary” Eric Dyson wisely reminds us: “While compliance with ERISA fiduciary duties is a legal obligation, embracing a purpose-driven approach elevates fiduciaries from rule-followers to true stewards of participant well-being. By starting with ‘Why,’ fiduciaries can inspire trust, drive meaningful engagement, and ultimately enhance the retirement outcomes for those they serve.” To put this concept into action, Dyson offers these specific examples of holding the purpose of “ERISA duties front and center:
Duty of Loyalty (Acting solely in participants’ best interests)
- Minimal Compliance Why: “To fulfill legal obligations and avoid potential penalties.”
- Stewardship Why: “To honor the trust participants place in us, ensuring every decision enhances their financial well-being.”
Duty of Prudence (Making informed, skillful, and diligent decisions)
- Minimal Compliance Why: “To adhere to industry standards and mitigate risks.”
- Stewardship Why: “To empower participants with confidence in their retirement journey through meticulous and thoughtful management.”
Duty to Diversify Investments (Reducing unnecessary risk to participants’ assets)
- Minimal Compliance Why: “To comply with diversification requirements and minimize potential liabilities.”
- Stewardship Why: “To provide a resilient investment portfolio that supports participants’ diverse retirement goals.”
Duty to Follow Plan Documents (Adhering to governing plan rules and ERISA requirements)
- Minimal Compliance Why: “To ensure regulatory adherence and maintain plan qualification.”
- Stewardship Why: “To uphold the integrity and transparency of the plan, fostering trust and clarity among participants.”
Good To Remember: Prudence and Loyalty
Decision making is a big part of being a plan sponsor, so whenever assessing plan options, it’s imperative for plan sponsors to keep focused on their fiduciary obligations. Specifically, plan sponsors must “be sure they understand any option before selecting it”, and clarify the benefits and costs for participants:
Despite all the new products available to plans, “underneath it all, the same standards apply: prudence and loyalty,” says David Levine, a partner in the Groom Law Group, referencing the core fiduciary obligations under ERISA. The retirement world is constantly evolving, and “there are always new solutions as people try to address what people perceive as room for enhancement,” Levine says. Sponsors should evaluate the direct and indirect costs, the outcomes and the recordkeeping requirements of any option they are considering.
Even while acting as purposefully, diligently, and prudently as possible on behalf of the plan and participants, sponsors also need to remember they can be held personally liable in the event of a fiduciary breach. Moreover, although ERISA bonds are required by the DOL, they do not protect plan sponsors. Colonial Surety offers a convenient and affordable package, tailored especially to help plan sponsors mitigate their risks. Armed with our Fiduciary Liability coverage, for a few dollars a day, you’ll have 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 company–against regulatory actions related to data and privacy, as well as expert response services. Our packages are available for 1, 2, and 3-year terms, providing flexibility and locked-in rates:
Liability Insurance for Plan Sponsors HERE
Colonial Surety was founded in 1930 and continues giving customers the assurance that they, their businesses, and their clients are safeguarded with the right surety and insurance products at all times. We are a direct and digital insurer offering products through an online platform supported with exemplary customer service. We give customers a simple, direct, and instant service that takes the pain out of buying insurance and bonds. Colonial Surety is licensed in every state in the U.S., rated “A” Excellent by A.M. Best, and listed by the U.S. Treasury as an approved surety.