Business owners who sponsor retirement plans are putting employees on the path to secure retirement—-clearly this is a great thing to do! Plus, sponsoring a retirement plan can benefit the business, and even draw talented and loyal workers. The rewards of sponsoring a retirement plan do come with responsibilities—- and risks. Understand how you can best protect yourself with these ten pointers.
Simply Put: Fiduciary Responsibilities and Risks
- If you sponsor a retirement plan at your company, you are automatically a fiduciary under the high standards of a law called ERISA, which is enforced by the U.S. Department of Labor.
- Being a fiduciary means you are personally responsible for ensuring that the plan consistently benefits participants.
- Failures, including errors and oversights, can result in fines and penalties, as well as lawsuits–all of which put your personal assets at risk. As the Department of Labor explains: “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.”
- You can never fully eliminate the risk of being held personally accountable to the plan, participants and beneficiaries. ERISA experts at Robinson Bradshaw underscore: “If fiduciaries fail to fulfill their fiduciary duties, the penalties may be severe. From a financial standpoint, the DOL and IRS may impose civil penalties and excise taxes, and plan fiduciaries may personally face civil lawsuits and criminal penalties.”
- Outsourcing plan services does not free you from your risks: as a sponsor, you choose the service providers and remain ultimately accountable for their success on behalf of plan participants and beneficiaries.
- Specific examples of what you can be held personally accountable for as a fiduciary include:
- 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?
- As a fiduciary, you can also be held accountable for failing to adequately mitigate cybersecurity threats to the plan, or to curtail the damage from a breach. You can also be held responsible for failure to monitor your chosen service providers for their adherence to cybersecurity protocols.
- Numerous successful ERISA litigation wins on behalf of plan participants have made copy cat cases easy and lucrative, putting sponsors from small businesses at increased risk. Even if nothing has been done wrong, defense costs average over $360,000, with resolution averaging about $1.2 million.
- Though required by law to protect the retirement plan against acts of fraud or theft, your ERISA Fidelity Bond does not protect you as the plan sponsor.
- If you face claims that you have failed in 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. Without Fiduciary Liability Insurance, your personal assets are exposed. As Benefits Pro sums up: “Retirement plan sponsors have enough on their plates dealing with the elements under their control, so they should pursue remedies, like fiduciary liability insurance, that relieves the exceptional burden of things they cannot control.
Protection For Retirement Plan Sponsors Made Easy
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.
To make protection even easier for plan sponsors, Colonial Surety Company even helps you add the Fiduciary+ Cyber Liability Insurance to your ERISA Bond.
Get protected now: Fiduciary+ Cyber Liability Insurance
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