Failure To Monitor Other Fiduciaries



Retirement plan sponsors are not only responsible for their own actions—they are obligated to monitor the other fiduciaries of the plan. Failure to monitor can result in being named personally liable in a lawsuit, which puts personal assets in jeopardy. Experts urge protective action.


Inherent Risks

Most retirement plan sponsors outsource plan services to third parties who may take on fiduciary responsibilities. However, doing so does not eliminate the fiduciary risks that are inherently involved in sponsoring a retirement plan under the exceptionally high standards of ERISA law. Exemplifying the fact that failure to monitor other fiduciaries can be deemed a fiduciary breach is a new lawsuit underway in the U.S. District Court for the Eastern District of Arkansas. Plan Sponsor shares this excerpt from the complaint: “Defendants have breached their fiduciary duties to the Plan in violation of ERISA, to the detriment of the Plan and its participants and beneficiaries.” Specifically:


The lawsuit alleges two counts of fiduciary breach, for failure of the duty of prudence and failure to monitor other fiduciaries. According to the complaint, excessive fees allegedly were charged against participants’ in-plan investments for recordkeeping services, and the plan fiduciaries failed to operate the plan prudently ….The plaintiffs’ complaint asks the court to certify a six-year class period “on behalf of all persons who were and/or are participants in and beneficiaries of the Plan at any time during the six-year period preceding the filing of the original Complaint and up through the present….The plaintiffs asked the court to repay the plan for all losses and lost profits and to appoint an independent fiduciary to run the plan, among other requests.


Of course being named in a lawsuit does not automatically result in being found guilty. However, plaintiffs have been the winners in most cases and settlements to date, laying the path for copycat cases. Accordingly, plan sponsors are advised not to go it alone: in the face of litigation, securing ERISA defense costs $600—per hour. Protection is essential and Colonial Surety is here to help with affordable Fiduciary Liability Insurance. With this, for a few dollars a day, you’ll have coverage for defense costs and penalty limits up to $1,000,000 if faced with alleged or actual breaches of duty in connection with the employee retirement plan. Cyber Liability coverage is included at no extra cost, providing additional protection against regulatory actions related to data and privacy, as well as expert response services.


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Good To Know: Fee Trends

Retirement plan investment fees have been on a downward trend over the past six years.  Although the investment fees for large plans have declined the most, smaller plans are experiencing reductions too. ERISA experts at JD Supra remind plan sponsors of the importance of understanding the performance and fees associated with investment options. It is also critical to carefully document the prudent processes used in monitoring the plan. For example, regularly benchmarking investments and fees—and keeping careful records of having done so, is a way for plan sponsors to demonstrate prudence in their fiduciary duties. Nonetheless, evidence of prudent process is not a guarantee of success in the courtroom. Daniel Aronowitz, Managing Principal of Euclid Fiduciary underscores the difficulties plan fiduciaries face during litigation, pointing out: “You can have the best process in the world, but plaintiff’s lawyers are good at making defendants look dumb if a case gets to trial. You have to prove a good process to the judge and it can be very difficult to do….”


Summing up the current risks associated with sponsoring a retirement plan, national expert Richard Clarke concludes: “Retirement plan sponsors have enough on their plates dealing with the elements under their control, so they should pursue remedies, like fiduciary liability insurance, that relieve the exceptional burden of things they cannot control.”  Indeed, with lawsuits, cyber threats and regulatory compliance issues all on the rise, why take chances? Colonial’s fiduciary+cyber liability  package even includes protection against regulatory actions related to data and privacy, along with expert response services in the event of a cyber breach. Put the protection you deserve in place today:


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Pension plan professional? Colonial can help you make sure your plan sponsor clients have the coverage they need—and we’ve got you too. From Errors and Omissions Insurance to Fiduciary Liability Insurance, Employment Practices Liabiity Insurance–and more, we’re HERE with the coverages pension professionals need to keep the business going—and growing.


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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.