When it comes to managing an employee benefit plan, even if a plan sponsor commits a very small plan violation, such an incident can result in hefty ERISA penalties. Even failing to file Form 5500 can result in plan sponsors being subject to substantial penalties.
So what are the common misconceptions plan sponsors are having when it comes to handling plans? Here is our inventory of the most recurrent incorrect assumptions.
The DOL and IRS will credit me for good intentions even if I get things wrong. This is not the case. As a fiduciary, pure and honest intentions will not help you evade consequences. These organizations demand complete compliance, not well-intentioned efforts at compliance that fall short. You will not be given leniency in a court of law just because you believe you meant well.
I can disregard displeased plan participants. They should be thankful they even have an employee benefit plan. It is not in your best interest to ignore workers who file legal complaints and prompt a government audit. Be sure to consistently acknowledge and respond to queries from plan participant and clearly explain causes for any benefit denials.
Acquiring an outside adviser or third party administrator is too pricey. I can manage it by myself. This isn’t ideal. Fiduciaries must uphold a “prudent expert” benchmark. If you are not an investment professional, you must confer with a person who is one. In addition, fiduciaries are responsible for the selection and monitoring of third party administrators. Just like you wouldn’t try to prepare your own will without the expertise of an attorney, you shouldn’t try to manage your own plan without the assistance of an informed vendor, and you can be liable for failing to properly monitor your vendor.
If you are involved in the management of an employee retirement plan, you can face personal exposure to claims alleging breach of fiduciary duty. Colonial Surety Company offers fiduciary liability insurance for plan sponsors in our ERISA fidelity bond packages, which come with an ERISA bond, fiduciary liability insurance, and cyber liability insurance. Cyber liability insurance protects your business and the plan from cyber breaches. Fully protect your plan, yourself, and your company all in one place, instantly online. Contact us today.