Take Note: Personal Liability?
The word “fiduciary” gets used a lot in retirement plan conversations — but few plan sponsors realize just how personal that responsibility really is. We rounded up what leading ERISA attorneys and consultants have to say about fiduciary duty and personal liability, to provide an “at a glance” picture of what’s at stake.
Responsible For Restoring Losses
If you sponsor a 401(k) plan for your employees, the Department of Labor makes it clear that the consequences of failing vis a vis your responsibilities are personal: fiduciaries “who do not follow the basic standards of conduct may be personally liable to restore any losses to the plan, or to restore any profits made through improper use of the plan’s assets.” Courts, the DOL adds, may take “whatever action is appropriate against fiduciaries who breach their duties under ERISA.” (DOL, Fiduciary Responsibilities).
Under ERISA, a fiduciary is anyone who exercises discretion over plan management, plan assets, or plan administration. If you decide which funds go on the investment menu, sign off on the recordkeeper contract, or simply have the authority to make those calls, you’re a fiduciary —and though you can outsource plan administration and services, you can never fully eliminate your fiduciary obligations and risks.
When you sponsor an ERISA retirement plan, you can be held personally liable for for errors in your oversight of the plan, including:
- Decisions: Do you have the right advisor, and investment options?
- Cost control: Are the plan fees reasonable and services solid?
- Compliance: Do operations adhere to the plan document, and government regulations?
Faced with allegations or investigations, though it can turn out you have done nothing wrong, ERISA defense costs are an out of pocket expense that adds up quickly, averaging $600 per hour.
The Personal Risks Are Real
When it comes to the high standards of the Employee Retirement Income Security Act (ERISA), many respected voices on the risks carried by fiduciaries make it clear that personal liability is real, it’s growing, and it’s manageable — but only if plan sponsors take it seriously before a claim ever shows up. Here’s what they’re saying:
- Ary Rosenbaum, ERISA attorney, The Rosenbaum Law Firm P.C.: Even winning a lawsuit is still “a hollow victory” once the cost is counted. (JDSupra)
- Don Trone, CEO, Center for Board Certified Fiduciaries: “It’s not what a fiduciary did — it’s what the fiduciary forgot to do.” (Business Wire)
- Lars Golumbic, Principal & Litigation Co-Chair, Groom Law Group: “A plan fiduciary’s personal wealth may unwittingly be at risk.” (Groom Law Group)
- Fred Reish, Director of Fiduciary and ERISA Practice, Prime Capital Retirement: “In that sense, if the fiduciaries make imprudent decisions in selecting the investment types, they could be subject to personal liability for fiduciary breach.” (Fred Reish)
Notice what these voices have in common. Rosenbaum has represented plan sponsors for over two decades and has seen firsthand how quickly a sense of “that won’t happen to me” turns into a very real, very personal problem. Trone’s line about omission versus commission gets at something plan sponsors often miss: liability rarely comes from a single bad decision. It comes from the meeting that didn’t happen, the fee benchmarking that got skipped, the documentation nobody thought to keep. Golumbic and Reish, coming at it from the legal side, simply confirm what the case law already shows — that the exposure of retirement plan fiduciaries is personal, it’s active, and it isn’t going away.
Make Decisions Well, Monitor Results—and Get Protection Too
As you reflect on deepening your approach to your fiduciary responsibilities as a plan sponsor, the Department of Labor’s booklet entitled “Meeting Your Fiduciary Responsibilities,” offers a solid overview on both the expectations and personal liabilities that are inherent with retirement plan sponsorship. It’s also essential to stay up to date on the Employee Benefit Security Administration’s changing priorities for enforcement, and discuss them with your advisers and legal counsel. Note for example, that cybersecurity is now number one on the list.
It’s wise to lean on great third-party providers for advice and administration, but remember, you can’t hand off all of your responsibilities— the decisions, and the job of monitoring results remain yours. Effective plan sponsors focus on making quality decisions (and documenting your process), and on oversight. Toward that end, you may find this article, by Eric Dyson of 90 North Consulting helpful: Eight Signature Principles of Thoughtful Fiduciary Leadership.
Even with expertise and diligence on your side, it is unwise to shoulder ERISA fiduciary responsibilities alone, without protection. To ensure that even small business owners have affordable protection, Colonial Surety Company offers an efficient ERISA Bundle which combines three essential protections in one seamless package:
- ERISA Fidelity Bond — Fulfills your federal mandate to protect plan assets from fraud and dishonesty
- Fiduciary Liability Insurance — Provides up to $1,000,000 in coverage for personal legal defense costs and penalties arising from fiduciary errors, administrative oversights, and participant claims
- Complimentary $50,000 Cyber Liability Insurance — Protects your plan and company against regulatory actions following a data breach, addressing the DOL’s cybersecurity guidance directly by including expert response services.
Colonial Surety Company is Treasury-Listed, rated “A” (Excellent) by AM Best, and has been in business since 1930. As a direct carrier — not a broker — there are no agent markups or unnecessary fees. You can quote, purchase, and download proof of coverage entirely online in minutes.
Don’t wait for a participant complaint, DOL inquiry, or cyber threat to find out what you’re missing.
Get an instant quote on Colonial Surety Company’s ERISA Bundle today — and protect your plan, your business, and your personal assets in one smart move.
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