The lawsuit, won on behalf of employees of Fidelity Investments is an important reminder to sponsors of retirement plans of all sizes: carefully monitor your chosen service providers.
Beware: Breach of Duties
As Bloomberg Law reports:
The settlement, which is expected to benefit about 41,000 participants and beneficiaries in Fidelity’s $17 billion 401(k) plan, resolves a lawsuit accusing Fidelity of filling the plan “exclusively” with Fidelity-affiliated investments that earned fees for the company. It follows Judge William G. Young’s March decision ruling that Fidelity breached its duties under ERISA in managing the plan.
The settlement is one of the larger deals negotiated in the recent series of lawsuits challenging financial companies that include affiliated investment products in their workers’ 401(k) plan. Other companies signing multimillion-dollar settlements include McKinsey & Co. ($39.5 million), SunTrust Banks Inc. ($29 million), BB&T Corp. ($24 million), and Deutsche Bank ($21.9 million).
Monitor Service Providers: It’s a Fiduciary Duty
Whether their plans are big or small, all retirement plan sponsors have the same fiduciary responsibilities: they must always act on behalf of all of the plan’s participants and beneficiaries. As reflected in the outcome of the case against Fidelity, one of the critical fiduciary duties of all plan sponsors is monitoring the plan’s service providers.
The US Department of Labor provides this summation related to the duties of plan sponsors to monitor service providers:
Establish and follow a formal review process at reasonable intervals to decide whether to continue using the current service providers or look for replacements.
When monitoring service providers, the employer should:
- Review the service providers’ performance;
- Read any reports they provide;
- Check actual fees charged;
- Ask about policies and practices, such as trading, investment turnover, and proxy voting; and
- Follow up on participant complaints.
As plan sponsors strive to fulfill all of their fiduciary responsibilities, Colonial Surety Company offers help via comprehensive ERISA bond packages. With an affordable coverage package, plan sponsors can secure up to $1,000,000 of fiduciary liability insurance.
Keep in mind, the ERISA bond required for the retirement plan protects the participants of the plan, but does not cover the plan sponsor as the fiduciary. Colonial’s 2 or 3-year ERISA bond packages provide the greatest overall savings and protection— including options for cyber liability insurance to safeguard your company and plan from covered losses and expenses in the event of a cyber attack. Colonial even includes extended coverage to ensure your ERISA bond remains US Department of Labor compliant.
Good To Remember
What exactly does it mean to be a fiduciary? Investopedia explains:
A fiduciary is a person or organization that acts on behalf of another person or persons, putting their clients’ interest ahead of their own, with a duty to preserve good faith and trust. Being a fiduciary thus requires being bound both legally and ethically to act in the other’s best interests.
Colonial Surety Company invites plan sponsors to choose the comprehensive, coverage you and your plan need now. Select an affordable package and receive:
- TheERISA bond required to protect the assets of the retirement plan from theft;
- Cyber Liability coverage to safeguard your company and plan from covered losses and expenses in the event of a cyber breach; and,
- Fiduciary Liability coverageto protect you and your assets from personal liability.
Colonial is rated “A Excellent” by A.M. Best Company, U.S. Treasury listed and in business all across the USA. As a leading national provider of ERISA bonds, Colonial makes it easy, fast and direct to quote and purchase your coverage package online-from anywhere.