Despite years of costly allegations over investment performance, many plan sponsors are not adequately monitoring. Lawsuits naming businesses–and their fiduciaries—-continue to underscore the importance of making decisions that benefit participants and documenting the prudent processes used all along the way.
Prudent Alternative Investments
As the Department of Labor reminds us, retirement plan sponsors are inherently fiduciaries, and as such, personally responsible for decisions like: the selection of service providers; the investment options offered to participants; fees; and, adherence to plan rules. Under the high standards of ERISA law, a single mistake can lead to lawsuits that target your personal money and assets. As companies and their fiduciaries continue to be sued, the average cost of resolving ERISA litigation is over $1.2 million.
Investment performance and overpaying on administrative fees are two areas of plan sponsorship that have been under particular scrutiny. The volume of litigation has opened the floodgates for copycats. Analysis of a 401k-fiduciary-breach-suit yields important lessons for plan sponsors from businesses and plans of all sizes—don’t take a laissez faire approach to underperforming investments offered to participants:
A suit alleging fiduciary breaches says that sustained underperformance and massive fund outflows provided signals that plan fiduciaries ignored….Specifically, the suit…claims that “Defendants failed to appropriately monitor the Plan’s investments, resulting in the retention of unsuitable investments in the Plan instead of prudent alternative investments that were readily available at all times Defendants selected and retained the funds at issue and throughout the Class Period. Since Defendants have discretion to select the investments made available to participants, Defendants’ breaches directly caused the losses alleged herein.”
“When an investment option’s track record is so poor, as is apparent here, defendants should necessarily investigate and replace the fund in the plan with an alternative that has demonstrated the ability to consistently outperform the benchmark, or, at the very least, in such an efficient segment of the market, retain an alternative that tracks the benchmark.”
Periodic benchmarking related to both fees and investments is critical, as is careful documentation of the resulting actions taken. As the plan’s ultimate decision maker, don’t make the assumption that limiting investment options is a way to minimize your fiduciary liabilities: arguments are also being made related to how pared down investment menus negatively impact the retirement savings of participants over time.
Protect The Company, The Plan and Yourself
The serious obligations and risks associated with being a plan sponsor necessitate attention–and plan sponsors are also wise to put protection plans in place. Remember, the ERISA Bond required by the Department of Labor does not cover your personal exposure as a fiduciary. Additionally, cybersecurity breaches are not “just a tech thing”: they can quickly escalate into fiduciary breach allegations, especially if you do not have an expert response plan in place.
Don’t shoulder unnecessary risks alone. Colonial Surety offers affordable Fiduciary Liability Insurance, which even includes Cyber Liability Insurance at no extra cost. Specifically, this package offers:
- Fiduciary Liability Insurance which protects you from lawsuits alleging breaches of fiduciary duty, covering legal defense and potential penalties.
- Cyber Liability Insurance to curtail the financial fallout of a data breach, and provide defense against lawsuits and regulatory actions.
- Expert response services to minimize damage following a cybersecurity incident and get you back on track quickly.
At Colonial, a whole year of Fiduciary +Cyber Liability coverage is less than a few dollars a day and protects you, your business and the retirement plan.
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.