Among other fiduciary breach claims, a new lawsuit, filed by retirement plan participants against a freight transporting business, alleges plan sponsor failure to monitor revenue-sharing payments for reasonableness, and describes the results to participants as devastating.
Breach of Fiduciary Duty
Claims of “excessive and unreasonable” fees—which went unchecked by the plan sponsor—are at the guts of the latest ERISA lawsuit. Plan Sponsor shares this summation of the allegations:
Plaintiffs allege in the complaint that fiduciaries mismanaged the plan by having participants pay excessive fees for recordkeeping and administrative services to the plan’s recordkeeper…Additionally, plaintiffs have alleged a plan sponsor fiduciary breach caused by participants paying excessive revenue sharing as direct and indirect compensation….The retirement plan uses revenue sharing to compensate [the record keeper] for the cost of…services. Under the plan sponsor’s revenue-sharing arrangement, payments are derived from investments in the plan.
“The direct and indirect payments defendant caused the plan, participants, and beneficiaries to make for recordkeeping and administrative services during the class period were excessive and unreasonable,” the complaint states. “Defendant breached its duty of prudence by failing to monitor, control, negotiate, and otherwise ensure that indirect compensation plan participants’ pay [was] not excessive and unreasonable.”
The complaint explains that revenue-sharing payments are not “per se imprudent,” but must be closely monitored for reasonableness.
Selecting and monitoring plan service providers is an essential duty of plan sponsors—and keeping tabs on the reasonableness of fees is a key aspect of this duty. Plan sponsors are also reminded that even with great diligence, errors and oversights occur, and under the high standards of ERISA law, mistakes can result in fiduciary breach allegations.That’s why it’s critical for plan sponsors to protect themselves from personal liability. Colonial Surety is here to help with an affordable Fiduciary and Cyber Liability Insurance Pack that includes:
- Legal defense and coverage for penalties against claims of alleged or actual breaches of fiduciary duties.
- 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.
Our Fiduciary with Cyber Pack is now available with a one year commitment—and the annual fee is less then one hour of expert legal defense if a lawsuit or regulatory challenge strikes you and your business. Let’s get you covered, in minutes, today: Protection for Plan Sponsors.
Fiduciary Breach Allegation: Real Time Example
When a fiduciary breach allegation hits, expect disruption to follow. Securing expert defense is a must—and once allegations have been made, it’s generally impossible to obtain fiduciary liability insurance to defray the costs. As an example of what it will be like if a fiduciary breach allegation hits, here, in part, is a recent complaint filed against a plan sponsor:
“Plaintiffs are not making a claim against defendant merely because it used revenue sharing to pay administrative expenses,” the complaint states. “However, when (as here) revenue sharing is left unchecked, it can be devastating for plan participants.”
The complaint further argues that the plan sponsor failed to implement a prudent fiduciary process to properly monitor and control the fees that plan participants were paying for recordkeeping costs….According to the complaint, “this [proper fiduciary process] will generally include conducting a request for proposal process at reasonable intervals, and immediately if the plan’s recordkeeping expenses have grown significantly or appear high in relation to the general marketplace. [A]n RFP should happen at least every three to five years…and more frequently if a plan experiences an increase in recordkeeping costs or fee benchmarking reveals the recordkeeper’s compensation to exceed levels found in other, similar plans.”
As a plan sponsor, if you do not remember the last time a proper RFP process was undertaken related to service providers for your plan, it’s likely time to do so. Remember too, that it’s best practice, whenever selecting professionals to provide guidance and services on a retirement account, to obtain a statement in writing about what, if any, fiduciary responsibilities are being undertaken. While selecting and monitoring service providers, plan sponsors also need to implement the DOL’s Cybersecurity Guidance, which includes inquiring about the cybersecurity protocols of all service providers.
Realistically, even with great diligence, plan sponsors can never fully eliminate the possibility of a cyber breach—or the risk of being held personally liable for fiduciary breaches—like failure to adequately monitor service providers. That’s why it’s unwise for plan sponsors to take unnecessary risks. The annual cost of Colonial’s Cyber and Fiduciary Liability coverage is less than the fee for one hour of expert legal defense if a lawsuit or regulatory challenge strikes you and your business. Get covered, in minutes, today:
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