The year is already finding some employers defending themselves against allegations of fiduciary breaches under the high standards of ERISA law. Whether or not the allegations are true, defense is expensive. In fact, experts are observing that the escalation of lawsuits over the past few years is driving up the cost of defense.
Case In Point
Although 2023 has just begun, Pensions & Investments reports there’s already been action filed against retirement plan fiduciaries alleging:
“Unreasonable” high record-keeping fees, “excessive” investment management fees and inadequate selection of investment options. “Defendants have not followed ERISA’s standard of care,” said the lawsuit filed…in a U.S. District Court in Santa Ana, Calif.
Among the allegations, the lawsuit criticized the company and fiduciaries for “offering and maintaining funds with higher-cost share classes when identical lower-cost class shares were available. The defendants also were blamed for “retaining and offering poorly performing funds within the plan which failed to meet or exceed industry standard benchmarks….”
Attornies specializing in ERISA law point out “Employee benefits litigation continues to be a growing area of exposure for those involved in the design, administration, and funding of employee benefit plans.” As Littler notes, the increase in litigation is driving up the cost of defense against fiduciary breach allegations:
Changes in the applicable laws and case authority, the rising cost of employee benefits, and increases in the number of retirees and layoffs all drive growth in this area. Additionally, plaintiffs’ lawyers continue to press new theories of liability and pursue class-based claims, increasing the complexity—and thus the cost—of employee benefits lawsuits.
What’s The Solution?
Unfortunately, what many retirement plan sponsors fail to realize until it is too late, is that their personal assets are exposed in the event defense is needed over allegations of a fiduciary breach: anyone with a role in the management of a retirement plan is personally liable for errors made in administering it. Though plan sponsors can mitigate risk through contracts with third parties, they can never fully eliminate the risks associated with being held personally accountable. Defense attorney fees in ERISA cases are upwards of $600—per hour, and litigation can drag on for years. That’s why national risk management expert Richard Clarke offers this advice:
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 relieve the exceptional burden of things they cannot control.
Colonial Surety’s affordable Fiduciary+Cyber coverage package ensures retirement plan sponsors and their businesses are protected.For a few dollars a day, you’ll have coverage for 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. Cyber Liability coverage is included at no extra cost, providing additional protection against regulatory actions related to data and privacy, as well as expert response services.
You have worked hard to build your business, add a retirement plan and grow your savings. Protect everything you’ve worked to achieve before another day goes by:
Never Normal Again
At this point, business owners have realized that there is indeed no going back to a time of fewer lawsuits (not to mention no COVID)—and even moving forward requires extra care. Clarke shares this perspective with retirement plan sponsors:
In retirement planning, our “new normal” has turned out to be “never normal again,” thanks to a seemingly unending array of troublesome economic, global health, and political events that have dramatically disrupted retirement plans.The past few years have introduced new concerns for businesses, administrators, and sponsors in protecting both themselves and their employees’ retirement plans. In a year that set all-time records for workplace class action lawsuit settlements, the top 10 ERISA settlements totaled $837 million last year, more than doubling 2020′s total of $380 million. And all indications point to a continued escalation of ERISA litigation….The commercial insurance product which defends and protects employee benefit plan decision makers charged with administering plans is fiduciary liability insurance.
Fiduciary and Cyber liability coverage go hand in hand at Colonial, because when it comes to sponsoring a retirement plan, a cybersecurity incident can rapidly spiral into allegations of a fiduciary breach. Even the most diligent retirement plan sponsor can never fully eliminate the likelihood that third party administrators will have cyber failings—and that means plan sponsors can never fully eliminate their own risks related to allegations of fiduciary failures. Why take chances? The annual cost of Colonial’s Cyber and Fiduciary Liability Package is less than the fee for one hour of expert legal defense if a lawsuit or regulatory challenge strikes. Cover yourself and the business you built, in minutes, today:
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.
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.