ERISA

Double Check The Calculations

09.27.2023

 

Plan sponsors generally do not set out to shortchange participants or violate ERISA. Nonetheless, oversights can occur, and tend to spiral into increased scrutiny for all. Beware: a recent settlement over an allegation that the use of outdated mortality tables had resulted in participant losses, has already resulted in similar claims popping up around the country.

 

Outdated Tables

Calculations based on outdated tables are in the spotlight, following a settlement in a Milwaukee lawsuit that alleged “plan fiduciaries relied on outdated mortality assumptions” and in doing so, “violated ERISA  and shortchanged vested participants.” Experts, including Drew Oringer,a partner at the Wagner Law Group, caution plan fiduciaries that the allegation is likely to be widely copied, observing: “There is starting to be a line of these cases now, some resulting in recovery, so it is not surprising that we’re seeing a continuation of the line….Until the cases start to come up dry, or there’s authority that cuts against recovery, it wouldn’t be surprising if this type of claim increasingly becomes a flavor of the day, whether or not the facts really support a claim.”

 

Indeed, over the course of just a few weeks, four new lawsuits have been filed against the fiduciaries of defined benefit retirement plan sponsors, alleging use of “out-of-date actuarial data to calculate pension benefits for participants and beneficiaries….” The cases are all seeking class action status. One of the new claims states: “By using outdated mortality tables to calculate joint and survivor annuities and preretirement survivor annuities,” the company “harmed the financial security of its former employees and their loved ones, to its financial gain….” The claim, made in the U.S. District Court for the Eastern District of Michigan, specifically includes “four counts of alleged fiduciary breach against each pension plan defendant.”  

Experts further remind us: “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.” Retirement plan sponsors and administrators bear personal exposure for third-party claims of not meeting fiduciary obligations, and, national risk management leader, Richard Clarke stresses this liability must be taken increasingly seriously, given the swirl of litigation hovering over retirement plans: “Entrepreneurial-minded attorneys are flocking to uncover breaches of fiduciaries’ ERISA duty….Opportunistic attorneys even go fishing for ERISA violations by casting their litigation netting far and wide….Fiduciary liability insurance is an indispensable measure to ensure sponsors and their businesses are protected with defense costs and penalty limits.”

 

Colonial Surety is here to help with affordable fiduciary liability insurance. Armed with our 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. Uniquely, Colonial even includes Cyber Liability Insurance, locks in multi-year rates and offers installation payments. Conveniently, our Fiduciary With Cyber liability package is now available with a one year commitment. Protect yourself and your business, for a few dollars a day, now:

 

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Good To Do

ERISA law experts urge plan sponsors to be on the alert for copycat cases. Note, for example, that over the past few years numerous lawsuits involving excessive fees have been winding their way through courtrooms across the country. Given the precedence set, even smaller businesses have been feeling the impact of litigation. Sponsors are advised to dig into plan details and document the prudent decisions and actions taken in executing their duties. It’s also essential for plan sponsors to be realistic: even when solid procedures, paid experts, and great diligence are in play, oversights can happen and litigation and ending up in court is a real possibility.

 

As fiduciaries, it’s critical for plan sponsors to be aware of their responsibilities as laid out by the Department of Labor.  Periodically setting aside time for the essential “housekeeping” associated with retirement plan administration is a good way to troubleshoot issues that might be on the verge of slipping through the cracks. Remember that the Department of Labor’s Employee Benefits Security Administration (EBSA) regularly pursues violations of ERISA, recovering funds for retirement plan participants. It’s always best for plan sponsors to be proactive about identifying and attending to errors. Provisions in the SECURE 2.0 Act make voluntary corrections more viable than previous regulations.

 

Pension Plan Professional?

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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.