When used together, these words spell bad news for retirement plan fiduciaries. Indeed, building on the precedents set over the past years, another “excessive fee” lawsuit has been filed, this time by lawyers from relatively small firms, targeting a relatively small retirement plan. Here are insights for action.
Understanding the Claims
ERISA litigation has been steadily rising, with precedents set by big cases now in use by more lawyers, to bring more cases against smaller retirement plans forward. As The National Law Review has explained: “These suits generally contend that plan sponsors and other plan fiduciaries have breached their fiduciary duties under ERISA by authorizing the plan to pay excessive record-keeping fees and/or by selecting plan investments that charged excessive investment management fees or that underperformed.”
The National Association of Plan Advisors reports that a new claim has been filed in California alleging that a 401(k) plan—and its individual members—“breached their fiduciary duties of prudence and loyalty to the Plan.” Noteworthy in its illustration of how precedents established in cases involving larger companies are being applied down the line, the new suit includes claims that fiduciaries breached their duties by:
- offering and maintaining higher cost share classes when otherwise identical lower cost class shares were available, resulting in the participants paying additional unnecessary operating expenses that not only failed to add value to the participants but resulted in an unjustifiable loss of compounded returns;
- overpaying for Covered Service Providers by paying variable direct and indirect compensation fees through revenue sharing arrangements with the funds offered as investment options under the Plan;
- failing to engage in a competitive bidding process by submitting a Request for Proposal to multiple service providers including recordkeepers, shareholder service and financial advisers; imprudently choosing and retaining expensive funds that consistently failed to meet or exceed industry benchmarks…
Though we probably won’t know the outcome of this new lawsuit for a while, experts at Plan Sponsor remind us: “A plan sponsor can do everything right and still be a target. Anyone can get sued…” Fiduciaries can be held personally liable for breach of fiduciary duties and when allegations are made, the cost of defense alone is staggering. For example, if you suddenly needed an expert ERISA attorney, you would likely pay upwards of $600—per hour. Let Colonial Surety help manage the risks: our Fiduciary Liability Insurance costs less then one hour of ERISA legal advice. For added value and protection, we even include Basic Cyber Liability Insurance. We make it so efficient and reasonable that you can secure protection in minutes, now:
If a lawsuit alleging excessive fees and failure to adequately monitor service providers lands on your desk, you will be asked for plan documents and records. Minutes from meetings about the plan will be scrutinized and you’ll be asked to detail how decisions were made and what actions were taken accordingly.
It’s a good idea for plan sponsors to periodically review the Department of Labor’s summation of fiduciary responsibilities and related protocols for choosing service providers, assessing fees and monitoring services It’s also essential to understand and act on the Employment Benefits Security Administration’s guidance for mitigating the threat of cyber crime against retirement accounts.
Ultimately, despite great diligence, as ERISA expert Ary Rosenbaum reminds plan sponsors: “You’re not just a 401(k) plan sponsor, you are also a plan fiduciary. No matter what you do or who you hire and what they do, understand that you’re almost always going to be on the hook for liability.” Armed with Colonial’s Fiduciary-Cyber Pack, if you face claims of alleged or actual breaches of duty in connection with the employee retirement plan, you’ll be covered for defense costs and penalty limits up to $1,000,000. Plus, in the event of a cyber breach, your business—and plan—will receive support at every stage of incident investigation and breach response, as well as coverage against lawsuits or regulatory actions related to the breach.
Colonial’s three point coverage package offers plan sponsors the greatest value, protection and efficiency. Conveniently, Colonial provides: the required ERISA bond to protect the assets of the retirement plan from theft; Fiduciary Liability coverage to protect you and your assets from personal liability; and, Cyber Liability coverage to safeguard your company and plan from covered losses and expenses in the event of a cyber breach.
Proceed with confidence: Three Point Coverage Package.
Serving customers since 1930, Colonial Surety is 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.
Colonial Surety Company is rated “A Excellent” by A.M. Best Company, US Treasury listed and in business all across the country.