Among the many details to attend to when sponsoring a retirement plan, is the careful recording of employee termination dates. This record is critical to the subsequent execution of a multitude of plan provisions. With disruption, turnover and change impacting many businesses, plan sponsors are urged to ensure precision related to termination dates. ERISA experts lay down the law.
Retirement plan sponsors have a lot to do—and sometimes things can slip through the cracks. For example, who records employee termination dates, ensures they are accurately provided to record keepers and monitors adherence to plan provisions accordingly? Experts from Groom Law Group and CAPTRUST remind us that plan sponsors cannot afford sloppiness:
Dates of employment are far from a minor element of a retirement plan; in fact, they are absolutely critical to retirement plan compliance. Termination of employment date is a key date for so many retirement plan provisions, such as small balance cashouts, eligibility for distributions, break in service rules for eligibility and vesting, required minimum distributions, post-employment 403(b) employer contributions, etc. Plan sponsors who don’t ensure that termination of employment dates are 100% accurate run the risk of disqualification or significant sanction upon audit. Thus, the termination of employment date issue should be a high priority, and you should work with your IT department and your recordkeeper to ensure 100% accuracy. If that is not possible, you may wish to consider hiring a Third-Party Administrator, or TPA, to address termination date accuracy.
Mistake Administering The Plan?
Plan sponsors are only human—so even with diligent effort, mistakes managing the retirement plan can occur. That’s why fiduciary liability insurance is a best practice for plan sponsors, given their obligations as fiduciaries under the exceptionally high standards of ERISA law.Eisner Amper emphasizes that while ERISA fidelity bonds are required by the Department of Labor, and provide protection from acts of fraud and dishonesty, they do not provide protection for unintended acts—as fiduciary liabiity insurance does:
For instance, an employee acting in good faith may make a mistake in administering the plan according to plan documents or fail to monitor third-party service providers, which may result in penalties or losses arising to the plan. Because these acts were taken in good faith and are not acts of dishonesty or fraud, they are not covered under an ERISA bond….ERISA does not require fiduciary liability insurance, however, it should be considered as protection against fiduciary breaches. Fiduciary liability insurance is designed to provide defense costs and applicable damages for actual or alleged breaches of fiduciary duty. Unlike the fidelity bond, fiduciary liability insurance offers plan fiduciaries protection of personal assets.
Without coverage, even a mere allegation of a fiduciary breach can be ruinous for plan sponsors. Consider, for example, that defense costs alone are about $600 per hour. These days, even a relatively minor cybersecurity incident can rapidly spiral into a fiduciary disaster too. That’s why Colonial Surety offers an affordable Fiduciary-Cyber Liability Pack for plan sponsors. Armed with this protection, you’ll have:
- Legal defense and coverage for penalties against claims of alleged or actual breaches of fiduciary duties—up to $1,000,000.
- Defense against lawsuits and regulatory actions related to a cyber breach.
- Expert-led response, notification and crisis management services to prevent a cyber incident from spiraling into a disaster.
Colonial makes it so fast and reasonable for plan sponsors to secure all this protection, that you can obtain yours in minutes now: Fiduciary-Cyber Liability Pack
An often overlooked DOL requirement for employer sponsored retirement plans is the ERISA fidelity bond. The purpose of ERISA fidelity bonds is to protect the retirement plan against acts of fraud or dishonesty—and the DOL requires ERISA fidelity bonds for everyone involved in handling funds or property of the retirement plan (in any way).
Experts remind plan sponsors to “frequently assess the bonding coverage to comply with requirements and to prevent any associated risks.” Learn more via the Department of Labor’s handout, “Protect Your Employee Benefit Plan With and ERISA Fidelity Bond,” which is available here. Note too: the Department of Labor requires ERISA Fidelity Bonds be obtained from the Department of the Treasury’s Listing of Approved Sureties (Department Circular 570). Failure to have an ERISA bond that continuously and adequately covers the plan poses significant risks for plan sponsors and other fiduciaries.
As a leading national ERISA bond provider, listed with the Department of the Treasury, Colonial helps plan sponsors ensure compliance. Uniquely, Colonial includes retroactive ERISA fidelity bond coverage for years when the plan was not adequately covered. Additionally, plan sponsors can opt for comprehensive, multi-year coverage packages, ensuring the ERISA bond remains Department of Labor compliant for the life of its term. Obtain ERISA Fidelity Bond Here Now.
Pension plan professional? We’re here to help you with your plan sponsor clients—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. Insurance for Pension Professionals Right Here.
Colonial Surety was founded in 1930 and continues giving customers the assurance that they, their businesses, and their clients are safeguarded with the right surety and insurance products at all times. We are a direct and digital insurer offering products through an online platform supported with exemplary customer service. We give customers a simple, direct, and instant service that takes the pain out of buying insurance and bonds. Colonial Surety is licensed in every state in the U.S., rated “A” Excellent by A.M. Best, and listed by the U.S. Treasury as an approved surety.