Trending: ERISA Litigation and Compliance Headaches

The playbook for ERISA lawsuits is undergoing a major rewrite. Moving past standard fights over high fees and poor fund performance, plaintiffs’ lawyers are now targeting the underlying machinery of plan administration—from actuarial formulas and forfeiture distribution to day-to-day operations. Court rulings have been notoriously unpredictable, with conflicting legal precedents emerging across circuits and “settled” cases being dragged back in. Read on for updates on the current landscape of ERISA litigation and compliance, as well as helpful insights for plan sponsors from attorneys and risk management professionals.

Litigation Keeps Expanding — and Courts Don’t Agree

Carefully select investment choices, monitor the fees, and document the process. All finished, right?  

While these actions have previously topped the checklist for many retirement plan sponsors (and remain essential), emerging ERISA litigation has made it clear that plaintiff attorneys and courts are not stopping at the investment menu, which means retirement plan sponsors have many new risks to manage. At Insurance Business, Steve Randall puts it this way: “Retirement plan lawsuits have spiked since 2020, and AI-assisted filing is accelerating the trend — leaving plan sponsors and their advisors exposed.” 

In addition to the increased stress of litigation risks, plan sponsors are also confronting regulatory shifts and compliance headaches, in part due to the massive legislative change from both SECURE 1.0 in 2019 and SECURE 2.0 in 2022, which “has left many sponsors struggling to keep up with implementation requirements. To help plan sponsors better understand the “forces reshaping the retirement plan landscape” Bonnie Treichel, founder of Endeavor Retirement and Endeavor Law offers this bird’s eye view:

• “The plaintiff bar expanded beyond one or two dominant firms…More attorneys entered the space, and AI-assisted document review has lowered the cost of filing ERISA lawsuits, enabling more firms to bring cases and further increasing litigation volume.”

• “Plan sponsors…fear they lack the operational bandwidth to implement another round of changes so soon.”

• Heightened litigation risk is making plan sponsors reluctant to adopt innovative plan features…Fear of being the first mover and attracting a lawsuit is suppressing plan design creativity.

Evolving Litigation and Regulatory Risks

As Groom Law Group has underscored, retirement plan sponsors are facing an “uncertain legal landscape.” While ensuring governance processes, documentation and oversight practices keep pace with the evolving regulatory and litigation risks, plan sponsors must be ever more clear on their personal fiduciary responsibilities–and liabilities, as described by the Department of Labor: Meeting Your Fiduciary Responsibilities. It’s also best to mitigate the inherent risks associated with ERISA plan sponsorship. Toward that end, Employee Benefit News (EBN) shares these pointers from Michael Bonfante, a pension professional at Colonial Surety Company: 

• Right now, there are more questions than answers. ERISA litigation theories are multiplying – reaching into fees, forfeitures, plan administration and even what counts as “reasonable.” Courts have left much unanswered, and across a landscape that’s actively shifting, the one certainty is uncertainty. 

• Uncertainty is risk.That risk catches a lot of plan sponsors off guard, because of a common misconception: many small and midsize business owners assume their mandatory ERISA fidelity bond already protects them if a participant sues. It doesn’t. A fidelity bond protects the plan’s assets from internal fraud or theft. It does not cover costs for a lawsuit alleging administrative errors or a breach of fiduciary duty. 

• In the face of a lawsuit alleging an operational miscalculation or vendor oversight, defense costs start accumulating before a court ever rules on the merits. Without fiduciary liability insurance, those costs come straight out of the plan sponsor’s pocket.

Remember, there are three broad categories of risk sponsors need to be concerned about, and the ERISA Bond only covers one: 

• ERISA Fidelity Bond: protects the plan’s assets from theft or fraud by people who handle plan funds.
• Fiduciary Liability Insurance: protects the fiduciaries themselves — their personal assets and the company’s finances — from the cost of defending and resolving claims of mismanagement or breach of duty.
• Cyber Liability Insurance: helps to cover the plan’s exposure to data breaches and cyberattacks, an area regulators are watching closely right now.

Colonial Surety Company, makes protection efficient and affordable for every retirement plan sponsor. Uniquely, our Fiduciary + Cyber Liability Bundle combines the ERISA Fidelity Bond, Fiduciary Liability Insurance, and Cyber Liability Insurance so plan sponsors aren’t left guessing which risks are actually covered. 

As an A.M. Best “A (Excellent)” rated, U.S. Treasury-listed surety licensed in all 50 states — and rated 4.8 on Trustpilot — Colonial Surety Company makes it simple to get every layer of protection in place, without piecing it together from multiple sources.