DOL: See You In Court



The U.S. Department of Labor got off to a running start this year, bringing allegations of fiduciary breaches against two different plan sponsors in federal court in Maryland. It’s worth taking notice that these cases involve thousands of dollars–not millions. Size is not a protection against fiduciary shortcomings, or the vigilance of regulators. 


Every Dollar, Every Day

Responsibility for the employee retirement plan includes responsibility for every dollar invested in it, every day. Failure to properly and promptly ensure employee contributions are remitted to the retirement plan is a serious problem, and although very few employers have been found to have abused contributions, the DOL is very proactive about investigating and bringing forward fiduciary breach allegations like those recently filed in federal court in Maryland:


The Department of Labor sued two separate plan sponsors in Maryland federal court… alleging seven breaches of the fiduciary duty to participants, under the Employee Retirement Income Security Act….The DOL charged the plan sponsors with breaches of their duty to operate the employer-sponsored retirement plans in the sole interest of participants….Both “Defendants … did not remit all employee contributions to the plan, instead allowing the money to remain unsegregated in the company’s general operating account,” the DOL alleges.


The regulator alleges fiduciaries breached their duties—to the respective retirement plan participants—of exclusive purpose, prudence, and loyalty, and that misconduct caused both plans to enter into non-exempt, prohibited transactions and engage in self-dealing….For allegedly failing to remit all employee contributions to the plan, allowing the money to remain segregated in the company’s general account from 2016 through 2021, the DOL sued fiduciaries of the…retirement plan. 


As part of its ongoing commitment to  civil investigation, corrective action and fund recovery, the DOL educates everyone associated with retirement plans to be aware of the signs of potential fraud, such as: The 401k or individual account statement is consistently late or comes at irregular intervals; the account balance does not appear to be accurate; the employer failed to transmit the contribution to the plan on a timely basis; a significant drop in an account balance that normal market movements cannot explain; and, the 401k or individual account statement shows contributions from a paycheck were not made.


Even when solid procedures, paid plan service providers and exceptional diligence are in play, oversights can happen. Best practice for plan sponsors includes having protocols to proactively identify and voluntarily correct errors. It is also critical for plan sponsors to understand that fiduciary responsibilities can be reduced, but never eliminated: “Some plan sponsors think if they outsource administration, oversight, or supervision of employee benefit plans, that they’re also outsourcing the liability. The liability exposure in that instance is the decision that’s made to utilize third party services.” 


As a plan sponsor, one thing you don’t have to do is shoulder all the risks alone: armed with Colonial’s liability coverage, if you face claims of alleged or actual breaches of duty in connection with the employee retirement plan, you’ll be protected with defense costs and penalty limits up to $1,000,000. 

At Colonial, a whole year of Fiduciary Liability coverage is less than a few dollars a day, and we even include Cyber Liability coverage to further protect you, your business and the retirement plan.

Protection’s just a few clicks away:

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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.