Examples of “don’ts” offer a crystal clear picture of the diligence expected of retirement plan sponsors. At the Department of Labor (DOL), the Employee Benefits Security Administration (EBSA), provides a snapshot of civil violations, along with “Getting It Right” educational materials to support plan sponsors in their fiduciary role.
ERISA Enforcement
Under the high standards of ERISA, a fiduciary who fails to properly fulfill obligations can be required to pay the plan for losses. Additionally, both the Department of Labor and the Internal Revenue Service can impose civil penalties and excise taxes, which cannot be paid by the plan. Bottom line: an inherent risk of plan sponsorship is exposure of personal assets. Obviously, diligence in avoiding civil violations is best, and EBSA offers this list of failures to steer away from:
- Failing to operate the plan prudently and for the exclusive benefit of participants;
- Using plan assets to benefit certain related parties to the plan, including the plan administrator, the plan sponsor, and parties related to these individuals;
- Failing to properly value plan assets at their current fair market value, or to hold plan assets in trust;
- Failing to follow the terms of the plan (unless inconsistent with ERISA);
- Failing to properly select and monitor service providers;
- Taking any adverse action against an individual for exercising his or her rights under the plan (e.g., being fired, fined, or otherwise being discriminated against);
- Failure to comply with ERISA Part 7 and the Affordable Care Act (welfare plans only).
Though most plan sponsors do not set out to “get it wrong,” errors and oversights frequently occur. One of the most common, according to EBSA’s “Getting It Right” education campaign, is failure to deposit participant contributions to the plan “as soon as they reasonably can be segregated from the company’s general assets.” As a plan sponsor, it’s essential to get in the weeds and understand the specifics of how and when the company payroll system and retirement plan service providers ensure “participant contributions are forwarded to the plan on the earliest possible date in compliance with the law.” EBSA’s resource booklet, Meeting Your Fiduciary Responsibilities, provides more specific pointers related to timely submission of participant contributions.
Another frequent fiduciary failure of plan sponsors is associated with not taking the time to actually confer with the plan document. Avoid this breach by referencing the plan document in the actual, day to day administration of the plan. For example, EBSA stresses making sure activities such as custody of plan assets, recordkeeping, benefit decisions and directing investments are actually carried out by the responsible parties as designated in the plan document.
Support for Retirement Plan Sponsors
To help plan sponsors succeed in meeting their fiduciary obligations, EBSA offers workshops, webcasts, publications and other tools through the Getting It Right education campaign, which emphasizes the “obligation of plan sponsors and other fiduciaries to”:
- Understand the terms of their plans
- Select and monitor service providers carefully
- Make timely contributions to fund benefits
- Avoid prohibited transactions; and
- Make timely disclosures to workers and their beneficiaries and reports to the government
As the ultimate monitors and decision makers 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.
Good To Know
Fiduciary Liability Insurance is the only form of protection that shields business owners against the inherent personal risks of sponsoring an employee retirement plan. Under ERISA, plan sponsors can be held personally liable for mistakes and oversights, whether actual or alleged. Defense and settlement are costly–even if nothing has been done wrong.
An ERISA bond is required, but protects the plan—not the person required to obtain it. As the DOL explains: “In a typical bond, the plan is the named insured and a surety company is the party that provides the bond….As the insured party, the plan can make a claim on the bond if a plan official causes a loss to the plan due to fraud or dishonesty.”
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.