Copying and pasting meeting minutes. Vague investment policies. Lack of prudent process around plan fees. Unclear protocols regarding the use of forfeited funds. These are all examples of sloppy retirement plan management practices that ERISA lawsuits have successfully used to make the case against plan sponsors. Read on for pointers on leveraging lessons from litigation to ward off trouble—-and become an ever better fiduciary.
Taking Fiduciary Responsibilities To Heart
Speaking at Groom Law Group’s Annual Seminar in Washington, D.C., David Kaleda cautioned that there is “an aggressive and creative plaintiff’s class action bar” at work, making diligence under the high standards of ERISA ever more critical. Indeed, years of ERISA litigation reveal actionable insights that plan sponsors can apply for ever better fulfillment of their fiduciary responsibilities. Toward that end, in a recent episode of the Be More Than A Fiduciary Podcast, ERISA experts, Eric Dyson, and Shannon Edwards, offer these key lessons from courtroom outcomes for plan sponsors:
- Many fiduciaries unknowingly increase legal exposure by using vague investment policy statements and recycling boilerplate meeting minutes, which courts interpret as a lack of real, documented process, even if good discussions occurred.
- Writing checks directly from the employer for plan services like recordkeeping, advisory, and audit, rather than using plan assets, can virtually eliminate scrutiny around fees and demonstrate clear fiduciary prudence, even if only done gradually.
- Due to increasing litigation around forfeiture usage, plan sponsors should not rely solely on ambiguous plan language but instead create a written policy that clearly outlines how forfeitures will be applied, reducing uncertainty and legal risk.
- Fiduciaries who fulfill only the legal minimums—like holding quarterly meetings or monitoring investments—may still fall short in improving participant outcomes, and should instead aim to be more than a fiduciary by actively removing barriers to retirement readiness.
Going further, Dyson underscores the importance of solid documentation related to oversight and decision making for retirement plans, observing: “If I see meeting minutes that are copy and paste, say the exact same thing for two years, for eight quarters, there’s a failure.” At the Rosenbaum Law Firm, Ary Rosenbaum also emphasizes that plan sponsors must put protocols in place to make good decisions on behalf of the plan—and carefully document not just the decisions, but how they were arrived at, and the subsequent actions taken:
Keeping notes of all meetings will help you show evidence that you took your role as a plan sponsor seriously. Setting up a committee isn’t enough; you have to hold meetings and record all the decisions with the minutes of those meetings … .One major mistake in creating a 401(k) plan committee is by having too many members on it. Too many members…paralyze the committee into inaction when they should be doing their job.…Draft minutes that record all the decisions made in the meeting, as well as those who attended. A big decision for the committee is usually going to be the fiduciary process of the plan. When the advisor of the plan makes recommendations or decisions (if they are an ERISA §3(38) fiduciary), make sure it’s reflected in the minutes. Also, summarize all the presentations…well as the thought process used in making the decisions that were made.
Higher Duty of Care
When you sponsor a retirement plan you are automatically a fiduciary under the high standards of ERISA, so, as Rosenbaum explains: “you have a higher duty of care when handling the money belonging to other people than you do with your funds.” Oversights related to fiduciary standards are dangerous, as the U.S. Department of Labor underscores: “Fiduciaries who do not follow the basic standards of conduct may be personally liable to restore any losses to the plan, or to restore any profits made through improper use of the plan’s assets resulting from their actions.” You can never fully eliminate the risk of being held personally accountable to the plan, participants and beneficiaries. Outsourcing plan services does not free you from your risks: as a sponsor, you choose the service providers and remain ultimately responsible for their success on behalf of plan participants and beneficiaries. As a fiduciary, you can even be held accountable for failing to adequately mitigate cybersecurity threats to the plan, or to curtail the damage from a breach. You can also be held responsible for failure to monitor your chosen service providers for their adherence to cybersecurity protocols.
If you face claims that you have failed in your responsibilities as a retirement plan sponsor, the only type of protection that shields you personally is Fiduciary Liability Insurance—-with it, you’ll be armed with coverage for defense and penalties. Without Fiduciary Liability Insurance, your personal assets are exposed. Colonial Surety Company offers an efficient and affordable Fiduciary+ Cyber Liability Insurance bundle specifically to protect retirement plan sponsors. For a few dollars a day, you’ll be armed with:
- $1,000,000 for Defense and Penalties if you are faced with alleged or actual breaches of fiduciary duty.
- Cybersecurity Coverage for the business and plan, which addresses Department of Labor recommendations, and includes expert response services to curtail damage after an incident.
To make protection even easier for plan sponsors, Colonial Surety Company helps you add the Fiduciary+ Cyber Liability Insurance to your ERISA Bond.
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