True or False: Only Big Retirement Plan Sponsors Get Sued?

Mar 26, 2026

Though it’s the big dollar cases against big companies with large 401k plans that make headlines, the reality is that sponsors with businesses of every size need to beware of their ERISA litigation risks. Attorneys and 410k specialists provide insights and offer pointers for reducing the inherent risks of sponsoring a retirement plan.

Small Business Retirement Plans: Reducing Obstacles and Risks

Saving for retirement has always been necessary, but with longer lives and higher costs of living upon us, it’s become more important than ever to save for the challenges aging can bring. The Small Business Administration (SBA) estimates that approximately 62.3 million people work for small businesses, so the role these business owners play in sponsoring retirement plans is clearly essential. In recent years, Bipartisan interest in making it easier for small business owners to offer 401k plans has been reflected in the SECURE Acts, and, as the Wall Street Journal has reported, a growing number of small businesses are providing retirement plans.

What many small business owners still need more help understanding and managing however, is their inherent risks under the high standards of the Employee Retirement Income Security Act (ERISA). Lawsuits against sponsors and other fiduciaries alleging high fees, inappropriate investment options, and other fiduciary shortcomings, have resulted in headline making lawsuits, which tend to result in settlement victories for plaintiff attorneys. The precedent established in these “big player” cases, has laid the path for more lawsuits, putting more plan sponsors at risk. As noted ERISA attorney Bonnie Treichel, Founding Partner and Chief Solutions Officer of Endeavor Law, explains at 401k Specialist Magazine:

Historically, there is the perception that only big plan sponsors could get sued—that being sued in the ERISA context was limited to the mega-plan space. One misperception about ERISA litigation is that unfortunately, it is no longer a single law firm…that is filing cases in the mega space. There are what are called “copycat lawsuits,” so there are more attorneys that are filing ERISA litigation cases.

For example, forfeiture cases were filed initially by a firm … .Other lawyers started filing those cases as well…and they are moving down-market … .I’ve always said that anyone can be sued for anything, but, if you have a good case, it’ll get dismissed. I still strongly believe that. But that pendulum has shifted just a tiny bit because the pleading standard changed for being able to get a case thrown out due to the Cunningham v. Cornell case. That was really a win for the plaintiff’s side.

In the face of rising ERISA litigation risks, what many retirement plan sponsors dangerously fail to understand is that they most likely do not have any insurance policy that covers the costs associated with defense. Traditional business insurance, like general liability insurance, typically does not cover lawsuits related to the retirement plan. Nor does the Department of Labor’s required ERISA Fidelity Bond. For the protection of plan participants, an ERISA Fidelity Bond essentially guarantees that the plan will be made whole in the aftermath of acts of fraud or theft—which are not the same as fiduciary oversights. Unfortunately, defense in an ERISA lawsuit alleging a mistake costs over $600—per hour. This is an out of pocket expense for plan sponsors, and adds up quickly.

As a leading national provider of ERISA Bonds, Colonial Surety Company frequently finds that plan sponsors are confused about their coverages, and offers an efficient solution. Our affordable All-in-One Package helps retirement plan sponsors manage their risks by including:

An ERISA Fidelity Bond: 100% compliance with DOL bond requirements
Fiduciary Liability Insurance: Up to $1,000,000 in coverage for defense and penalties in the event of allegations related to errors like those listed above.
Cyber Liability Insurance: $50,000 of coverage included at no extra cost to address the DOL’s strict standards for response and notification services following cybersecurity incidents. (Colonial Surety Company’s Cyber Liability Insurance explicitly covers both the retirement plan and this business.)

Best Practices for Plan Sponsors

Pointing out that “an aggressive and creative plaintiff’s class action bar” is making ERISA lawsuits more common, attorneys at Groom Law Group encourage retirement plan sponsors to act on insights from the litigation in order to reduce their risks. For example, Treichel advises greater diligence around meeting minutes. When taken seriously, meeting records can provide solid evidence that plan sponsors demonstrated prudent process while making decisions for the plan:

We’ve all talked about how meeting minutes create a record to demonstrate prudent process. I was at a conference, and someone said that they do virtual meetings and end up with multiple sets of meeting minutes. They said, ‘isn’t that better because now we have multiple versions of the record because sometimes different AI systems capture different things?’ No, that is absolutely not better. Now we have conflicting minutes.

The best practice is to have meeting minutes that keep you out of trouble and really are a preservation of showing a prudent process that you can use as an ‘exhibit A.’ I’m not saying don’t use AI, but make sure you have client consent for it, you’re not creating something that is going to be discoverable that you don’t want to be and make sure you’re creating one set of meeting minutes that is going to be what you want discoverable in the end.

Oversights related to any fiduciary standard can turn out to be dangerous for retirement plan sponsors. As the U.S. Department of Labor underscores: “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 resulting from their actions.” Remember too, outsourcing plan services does not free you from your risks: as a sponsor, you choose the service providers and remain ultimately responsible for their success on behalf of plan participants and beneficiaries. You can even be held accountable for failing to adequately mitigate cybersecurity threats to the plan, or to curtail the damage from a breach.

If you face claims that you have made an error in carrying out your responsibilities as a retirement plan sponsor, the only type of protection that shields you personally is Fiduciary Liability Insurance—-with it, you’ll be armed with coverage for defense and penalties.Colonial Surety Company offers an efficient and affordable Fiduciary+Cyber Liability Insurance bundle specifically to protect retirement plan sponsors.For a few dollars a day, you’ll be armed with:

$1,000,000 for Defense and Penalties if you are faced with alleged or actual breaches of fiduciary duty.
Cybersecurity Coverage for the business and plan, which addresses Department of Labor recommendations, and includes expert response services to curtail damage after an incident.

Don’t wait for a DOL audit, a participant complaint, or a creative plaintiff attorney to allege you’ve made mistakes and accuse you of a fiduciary breach. Secure your business, your plan, and your personal assets today.

Fiduciary+Cyber Liability Insurance

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