Employers who sponsor retirement plans are by definition fiduciaries under the high standards of ERISA law–and therefore open targets for lawsuits. While it is impossible to eliminate their risks, sponsors can take steps to mitigate claims and curtail damages. Read on for advice about reducing fiduciary risks.
Fiduciary Lawsuits and Small Businesses?
Allegations brought on behalf of retirement plan participants continue to make their way into courtrooms around the country, focused on claims that the sponsors erred related to fees and investment performance and the monitoring of third parties. Even when nothing has been done wrong, settlement frequently turns out to be less painful than the cost and disruption of mounting and sustaining defense under the exceptionally high standards of ERISA. The rise of copy cat cases has taken a toll on big and small businesses alike: while the average settlement last year was $8.4 million, settlements in the $200,000 range left plenty of scars on smaller businesses faced with ERISA litigation.
At BenefitsPro, Jay Kirschbaum reminds us: “Employers sponsoring employee benefit plans under ERISA…are fiduciaries by definition….That means that they owe a heightened duty of care to the plans, and more importantly, to the beneficiaries of those plans.” In addition to activating a plan committee, sponsors are advised to take these steps to mitigate fiduciary risks:
- Establish a regular process to review and monitor all plan vendors and their activities on behalf of the plan and the employer.
- Document the meetings, discussions, and conclusions of the committee (with the guidance of legal counsel).
- Implement fiduciary training to provide guidance and support in the administration of employer plans.
- Review all vendor agreements and service provider contracts including the vendor methodology and limitations.
- Consider costs and benefits of all agreements and document decision process – lowest cost is not necessarily the optimal option.
- Purchase appropriate ERISA fidelity bonds (which protect the plan from fraud or dishonesty) as well as consider fiduciary liability coverage for other breaches of fiduciary liability.
- Seek indemnification provisions from vendors to permit recovery for the plan for losses caused by the vendor and conversely avoid indemnifying the vendors for other errors.
- Determine whether plans should be bundled under ERISA or whether the employer would want to keep them as expected.
Guidance from EBSA
The Employee Benefits Security Administration provides Fiduciary Education to help plan sponsors key in on their essential responsibilities and avoid problems. After brushing up on the Meeting Your Fiduciary Responsibilities overview, it’s a good idea to review areas of oversight known to be problematic for sponsors, including fees, monitoring and audits.
Remember too: plan sponsors have the obligation to mitigate cybersecurity threats, so be sure to study up on the DOL’s Cybersecurity Best Practices. Recently, the Department of Labor leadership has also recommended cyber liability insurance which explicitly covers the business and plan, and urged response and notification services following all cybersecurity incidents.
As the ultimate decision makers and monitors for the company retirement plan, sponsors can be held personally liable for damages to the plan. Consider for example, that even a relatively small cybersecurity incident can result in a fiduciary breach allegation that puts personal assets at risk. Colonial Surety Company offers one, efficient and affordable solution to meet DOL expectations—and protect the personal assets of sponsors. For a few dollars a day, our Fiduciary+Cyber Liability Insurance Combo:
- Reduces the personal risks of plan sponsors, by providing defense costs and penalty limits up to $1,000,000, in the event of alleged or actual breaches of duty in connection with the employee retirement plan;
- Addresses Department of Labor cybersecurity recommendations;
- Explicitly covers the business and the plan in the event of a cyber breach; and,
- Provides expert response and notification services following a cyber breach.
One thing you don’t have to do as a plan sponsor is continue shouldering all the risks alone. Take a few minutes now, and ensure you’re fully protected ahead of the busy fall season. We’re right here to help:
Fiduciary+Cyber Liability Insurance Combo
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.