For retirement plan sponsors, a better question is whether they have been diligent or not, as judged by the high standards of ERISA. Shortcomings can not only be found by the Department of Labor and the Internal Revenue Service, but sussed out by artificial intelligence at the behest of litigators eager to turn oversights into lawsuits.
Making A List, Checking It Twice
Given the stakes, it’s wise for retirement plan sponsors to brush up on their responsibilities periodically, and take an honest look at possible areas of weakness vis a vis their obligations as fiduciaries. When in doubt, engaging an independent auditor makes sense. Even as the ERISA Industry Committee has been working to curtail the flow of copycat cases and frivolous allegations against retirement plan sponsors, new claims continue to be made, spurred in part by utilization of artificial intelligence to mine data from public disclosures, like Form 5500, with the goal of identifying “probable violations and compare recordkeeping and other fees paid by plans of a similar size, highlighting the administrators’ imprudence.”
Since most of the data available for AI analysis comes from Form 5500, David Levine, a principal and ERISA defense attorney with the Groom Law Group, encourages plan sponsors to carefully review Form 5500 for accuracy before signing off on and submitting it annually. While sweating the details, it is also imperative for plan sponsors to keep the big picture of their responsibilities front and center, and True Tamplin of Finance Strategists offers this overview:
The primary duties of a 401(k) Plan Sponsor include selecting appropriate investments for the plan, monitoring the performance of those investments, ensuring all applicable laws and regulations are met, providing information about the plan to employees, communicating regularly with participants, and periodically reviewing the plan to identify areas for improvement.
Plan Sponsors are responsible for ensuring that their 401(k) plans comply with all applicable laws, regulations, and requirements set forth by the United States Department of Labor (DOL). To meet these expectations, Plan Sponsors must have procedures in place to regularly monitor investments, review service provider performance, stay up-to-date on regulatory changes, and adhere to fiduciary responsibilities when making decisions about the plan.
Although most sponsors outsource the administrative and investment functions of their plans, it is impossible to to fully eliminate the inherent risks associated with their fiduciary obligations. Fortunately, one thing plan sponsors do not have to do is shoulder all the risks of litigation alone: armed with Colonial Surety’s fiduciary liability coverage, if you face claims of alleged or actual breaches of duty in connection with the employee retirement plan, you’ll be protected with defense costs and penalty limits up to $1,000,000. At Colonial, a whole year of Fiduciary Liability coverage is less than a few dollars a day, and we even include Cyber Liability coverage to further protect you, your business and the retirement plan.
When considering risk mitigation strategies, many plan sponsors confuse ERISA Bonds with fiduciary liability insurance. Keep in mind that although ERISA bonds are required by law to protect retirement plans, they do not protect fiduciaries. Fiduciary liability insurance is the only coverage that reduces the personal risks of plan sponsors and other fiduciaries:
The Fidelity Bond protects the plan and its participants, while Fiduciary Liability Insurance typically protects the plan’s fiduciaries from claims of a breach of fiduciary responsibilities….Without this coverage, a fiduciary could be personally liable for losses resulting from their fiduciary failures. The cost of the insurance can be paid by the employer or the fiduciary and not the plan assets. Examples of a breach of fiduciary duty may include:
- Errors in administering plans such as improper enrollment or termination
- Providing poor or negligent advice on investments within the plan
- Improper denial or change in benefits
- Failures in selection and monitoring of third-party service providers
Protection’s just a few clicks away:
Obtain Fiduciary With Cyber Liability Insurance Right 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, US Treasury-listed and in business all across the country.