Were you diligent in your service provider selection process? Are your retirement plan fees too high? Right now, these are especially critical questions for plan sponsors from small businesses. ERISA litigation is having a “trickle down” impact: the large cases have set precedents that are now impacting smaller plans.
Lessons from ERISA Litigation
According to experts, the flood of ERISA lawsuits is changing the retirement landscape—forever. Plan sponsors are encouraged to proactively use lessons from the litigation to improve their retirement plans. For example, having a specific process for choosing service providers—and documenting it carefully—is critically important. As
Benefits Pro reports:
Fees may get a lot of attention when it comes to 401(k) lawsuits, but it’s the lack of a well-articulated process and failure to comply with it that is most often the culprit, says Paul Secunda, partner with Walcheske & Luzi….“The most important thing is making sure that you have a very specific process that you follow in selecting a service provider and selecting investments,” he says. “We found out in these lawsuits that there was a lot of sloppiness. A paper trail is essential.”
That means putting plans out for a request for proposal every few years, which is especially important now due to a wave of recordkeeper consolidation. There’s been a bidding war among record keepers to lure plan sponsors from each other, so plans sponsors should be able to lower plan costs. At the very least, says Secunda, plan sponsors should be asking for a request for information, detailing plan costs and fund performance.
By periodically reviewing service provider offerings, plan sponsors are able to leverage plan design options that meet the needs of participants and ensure high quality services. These are important examples of executing the fiduciary duty of care. As you review service options, remember that according to ERISA law, all fiduciaries associated with a retirement plan can be held personally accountable to the plans’ participants and beneficiaries for a breach of fiduciary duties. That’s why plan sponsors in businesses of all sizes are also taking added precautions to ensure that the plan—and their personal assets— are protected.
Colonial Surety helps plan sponsors efficiently and affordably secure needed coverage. Opt for cost-saving multi-year packages, ensuring the ERISA bond required by the Department of Labor remains in compliance. When you choose a package, you will have: the required ERISA bond that protects the assets of the retirement plan from theft; Fiduciary Liability coverage to protect you and your assets from personal liability; and, Cyber Liability coverage to safeguard your company and plan from covered losses and expenses in the event of a cyber breach.
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Small Business Are Often Overcharged
No one wants to find out that they have been overcharged—and that’s why fees remain a hot button in ERISA litigation. In fact, the focus on fees is driving fees down, overall—but plan sponsors with small businesses need to be especially vigilant. Experts point out:
Plaintiffs’ lawyers and advisors credit litigation for helping to drive down fees over the years. In 2017, the average total fee paid by a plan participant was 0.92%, down from 1.02% in 2009, according to BrightScope and the Investment Company Institute. These fees are total plan costs and include administrative, advice and other fees from Form 5500 filings, in addition to asset-based investment management fees.
Even so, excessive fees haven’t disappeared completely. Smaller plans are especially vulnerable, BrightScope and ICI found. Plans with less than $1 million in assets have total fees of 1.44%. Of course fees can be difficult to tease out, notes Eric Doblyen of Employee Fiduciary, a 401(k) provider. “The trendline is toward transparency,” Doblyen says. “But we did a fee study last year and found that 75% of small businesses pay hidden fees.”
Allowing inappropriate or obscure fee structures is an example of a fiduciary breach related to a plan sponsor’s duty of care. In fact, plan sponsors can be held personally responsible for such breaches. As you double down on efforts to review and understand plan fees, don’t forget to also protect your business—and yourself. Because even allegations of a fiduciary lapse are costly and disruptive, plan sponsors across the country find Colonial Surety’s fiduciary liability insurance reassuring. It covers the business—and the plan sponsor—against claims of alleged or actual breaches of duty in connection with the employee retirement plan. Colonial’s annual premiums total less then just an hour or two with an ERISA lawyer if disaster strikes. Why take changes? Get protected now: Choose Your Plan Sponsor Protection Package Here.
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, U.S. Treasury listed and in business all across the country.