So far, 2023 has not been a great ride for plan sponsors: litigation and compliance issues are up—and participant confidence in retirement is down. A first quarter analysis points to a variety of challenges sponsors will want to take seriously.
Settlements Add Up
Even when no-wrongdoing has occurred, the disruption of ERISA litigation—and the cost of defense—means most cases continue to end up in settlements—which add up. Meanwhile, keeping up with compliance and regulatory actions presents challenges too. Further disheartening news for the retirement industry is that plan participants are losing confidence in their ability to retire. Factoring in all these dynamics, experts point out: “The first quarter of 2023 in the defined contribution market saw an uptick in lawsuits, many legislative and regulatory changes and a dip in retirement confidence….”
Retirement industry executive, Rhonda Berg notes that already 43 lawsuits have been filed against retirement plans in 2023; 14 were settled at a cost of $55.3 million. Small plans are not in the clear: the damage of even a “small settlement,” like $200,000, can be disproportionately ruinous for small companies and their fiduciaries. According to expert analysis the major theme in 2023 litigation continues to be “excessive fees and investments,” although “issues related to target-date funds” are also piling up in courtrooms. Surveying the legal minefield, Berg urges plan sponsors to avoid litigation by focusing on “the importance of reasonable fees, properly managed plan operations, appropriate fund offerings (including target-date funds), proprietary investments offerings and appropriate managed account program fees and services.”
Having a defense plan at the ready is also critical for retirement plan sponsors: lawsuits, cyber threats and regulatory compliance issues are on the rise, and as fiduciaries, we can be held personally liable. Defense alone averages about $600—per hour. Why risk your savings and everything you have worked for? A few dollars a day is all it takes to be covered with defense costs and penalty limits up to $1,000,000 if faced with alleged or actual breaches of duty in connection with the employee retirement plan. Colonial’s fiduciary+cyber liability package even includes protection against regulatory actions related to data and privacy, as well as expert response services in the event of a cyber breach. Put the protection you deserve in place today:
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Keeping Up With Washington
The action in Washington is providing a great deal for plan sponsors to attend to in 2023 too: jump start your action item list related to SECURE 2.0 here and don’t forget to consider how the optional provisions included in the massive legislation could benefit plan participants too. As if that is not enough, experts also advise plan sponsors not to lose track of decision-making related to the national debt limit, noting: “it may impact retirement savings tax incentives”:
A lot of us think it’s likely that Congress is going to buy themselves a little more time to deal with this issue, maybe until October, which would line up with when the fiscal year 2024 appropriation bills are due….In the longer term, the growing focus on the deficit will likely bring a return of proposals for things like more Rothification of retirement savings [and] limits on preferential tax treatment of [retirement] savings, especially for high earners.
Impending corrections to Secure 2.0 and lawsuits underway that might impact ESG down the road are also on the radar of retirement plan professionals. Additionally, attorneys are also carefully monitoring several cases that are anticipated to set precedent related to the cybersecurity of participant data and assets. Accordingly, ERISA experts remind plan sponsors of the importance of preventing cyber incidents from spiraling into fiduciary incidents. Toward that end, having a solid cyber breach response plan is critical. In fact, a response plan is one of the specific practices prescribed by the Department of Labor. Colonial Surety is here to help with affordable Cyber+Fiduciary Liability Insurance. Along with defense costs and penalty limits up to $1,000,000, coverage includes:
- Expert-led response services following a data breach.
- Protection from lawsuits and regulatory actions related to the breach.
- Legal services.
- Computer forensic services.
- Public relations and crisis management expenses.
- Notification services.
- Call Center services.
- Credit and Identity monitoring
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Pension plan professional? Colonial can help you make sure your plan sponsor clients have the coverage they need—and we’ve got you too. From Errors and Omissions Insurance to Fiduciary Liability Insurance, Employment Practices Liabiity Insurance–and more, we’re HERE with the coverages pension professionals need to keep the business going—and growing.
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Colonial Surety Company is rated “A Excellent” by A.M. Best Company, U.S. Treasury listed and in business all across the country. Serving customers since 1930, we are 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.