Failure To Shop Around?


Settlements continue to pile up as a way to bring excessive fee lawsuits against retirement plan sponsors to closure. Though admitting no wrong, employers find that the  disruption and costs associated with defense—and the uphill battle against precedent—is simply too much to withstand.


Excessive Fee Complaints

Plan Sponsor reports that the latest settlement by an employer came in an excessive fee complaint case brought by plaintiffs who alleged the employer had failed the retirement plan because “it did not try to reduce plan expenses or scrutinize investment options closely enough within the plan.” Under the terms of the settlement, participants in the plan from 2014-2020 are now eligble for payouts: “The amount paid to each participant will be determined by an allocation plan depending on each participant’s investment….” Andrew Oringer, partner and general counsel at the Wagner Law Group, offers this summary of the situation at hand for plan sponsors in the face of the swell of copycat lawsuits winding their way through courtrooms across the country:


This is another in a growing group of lawsuits in which the plaintiffs allege that plan fiduciaries imprudently chose funds with excessive fees as investment options under a 401(k) plan…. The plaintiffs and their attorneys have an interest in settling in that the chance of actually prevailing on such a fact-sensitive claim is generally speculative at best. A bird in the hand is worth two in the bush, so to speak….One way to look at litigation like this is that it encourages compliance…. A contrary view is that the litigious nature of the today’s U.S. retirement setting results in an unfortunate waste of time, effort and money on employers and administrators just trying to offer employees a 401(k) plan.

Though it tends to be the larger cases that make headlines, it is important to note that sponsoring a smaller retirement plan is not protection from such law suits. In fact, the precedents set in cases involving larger plans are resulting in copy cat cases against smaller businesses and their retirement plans. Defense against even an allegation of wrongdoing adds up quickly as litigation slowly unfolds. They’s why Colonial Surety offers affordable fiduciary liability insurance for plan sponsors: the annual premium for fiduciary liability insurance costs less than just one hour with an ERISA lawyer and arms plan sponsors with defense costs and penalty limits up to $1,000,000 in the event of covered lawsuits and regulatory actions. We even include 50,000 of basic cyber liability insurance, lock in multi-year rates and offer installation payments.


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An Ounce of Prevention…

Lower investment fees are generally considered a good thing—they result in more money for retirement plan participants, especially when added up over time. Plan sponsors are wise to be aware that 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 retirement plans are experiencing reductions too, as summarized by Plan Sponsor:


…Smaller retirement plans—defined as 50 participants or about $5 million in assets—had, on average, higher-percentage fees than larger plans, according to the 401k Averages Book. Small retirement plan fees declined from 1.12% to 1.09% over the past year and are down from 1.18% in 2017.Meanwhile, large-retirement-plan—1,000 participants or $50,000,000 in assets—fees declined from 0.88% to 0.85% over the past year and are down from 0.95% in 2017, according to the 401k Averages Book. We are encouraged to see fees continue to decline for participants in small 401(k) plans. Small business employers have a lot on their plate with deciphering [the] Secure 2.0 [Act of 2022], but small tweaks to their plans investment menu and fees can generate significant savings for their employees,” Valletta says.


ERISA experts at JD Supra remind plan sponsors to dig into the details of retirement plans—and this includes understanding the performance and fees associated with investment options, as well as properly recording the prudent process used when making these assessments. Examples of allegations against retirement plans and their fiduciaries, as noted by Pensions & Investments, include:


  • Failure to monitor the performance of investment funds in the plan
  • Consistent underperformance of funds against benchmark indexes
  • Use of more expensive funds—although the marketplace for plans of a similar size has plenty of lower cost and better performing funds


Regularly benchmarking investments and fees is an example of how plan sponsors can demonstrate prudence in their fiduciary duties. In addition to excessive fees, ERISA lawsuits are also occurring over fiduciary failure to act when funds are shown to be performing poorly compared to their “peer universe.”A harsh reality for plan sponsors is 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. Remember, Colonial Surety is here to help with a convenient Fiduciary plus Cyber Liability Insurance package that includes:


  1. Legal defense and coverage for penalties against claims of alleged or actual breaches of fiduciary duties.
  2. Defense against lawsuits and regulatory actions related to a cyber breach.
  3. Expert-led response, notification and crisis management services to prevent a cyber incident from spiraling into a disaster.


This Plan Sponsor Protection Package 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. Get covered, in minutes, today:


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Pension plan professional? We’re here to help you with your plan sponsor clients—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. Insurance for Pension Professionals Right Here.


Colonial Surety was founded in 1930 and continues giving customers the assurance that they, their businesses, and their clients are safeguarded with the right surety and insurance products at all times. We are a direct and digital insurer offering products through an online platform supported with exemplary customer service. We give customers a simple, direct, and instant service that takes the pain out of buying insurance and bonds. Colonial Surety is licensed in every state in the U.S., rated “A” Excellent by A.M. Best, and listed by the U.S. Treasury as an approved surety.