With more then half of all federal district courts now presiding over ERISA class-action cases, plan sponsors and other fiduciaries must be prepared to defend themselves against allegations of retirement plan mismanagement and other fiduciary breaches.
Properly Functioning Committees
Though plan sponsors can never eliminate their fiduciary risks, they can mitigate them.
One common way of delegating some of the responsibilities associated with the prudent oversight of a company sponsored retirement plan is by establishing a committee, via a charter. Given the range and seriousness of the responsibilities committees accept, experts point out that “members should represent a broad array of corporate functions,” encourage the engagement of an independent consultant to ensure that solid and comprehensive committee practices are in place, and remind us: “Ensuring benefits committees are empowered and equipped to govern plans is essential to fulfilling plan sponsors’ fiduciary duty, maintaining smooth plan operations and delivering a positive participant experience.” In other words, plan sponsors cannot merely appoint a committee and hope for the best. EBN reminds us:
When retirement plan sponsors fail to satisfy the fiduciary standards set forth under ERISA, they can face severe consequences ranging from Department of Labor enforcement to private litigation. To defend themselves against both ERISA violations and the liabilities that follow, plan sponsors need to understand their fiduciary obligations and institute a system of checks and balances for ensuring plans operate in accordance with these requirements. As the parties generally responsible for plan oversight, benefits committees play a central role in minimizing compliance risk. A benefits committee’s charter serves as a roadmap for plan oversight and provides evidence of the fiduciary’s intent to manage the plan prudently….The charter documents the delegation of responsibilities from the plan’s named fiduciary…to co-fiduciaries (i.e., benefits committee members). The charter also defines the committee’s scope of responsibility, which should include much more than just the quarterly investment reviews….
According to experts, commonly overlooked aspects of committee functioning occur related to plan administration, operations, documentation, compliance and testing and preparedness. When it comes to preparedness, keeping a proactive eye on how emerging corporate or legislative challenges can impact any aspect of the plan, is among the most vital functions of a solidly performing benefits committee. For example, “since benefit plans must be considered among the assets and liabilities that change hands in an M&A transaction, mapping out the options ahead of time will help ensure purchase agreements comply with successor plan rules and deliver expected outcomes for the plans and their participants.”
In addition to chartering a committee, another important way for plan sponsors to mitigate their fiduciary risks is by obtaining protection in the form of liability insurance. Indeed, given the precedence established as courts preside over ERISA litigation, it’s become more and more critical for retirement plan sponsors to protect themselves from personal liability. Colonial Surety offers an efficient and affordable Fiduciary and Cyber Liability Insurance combo, which includes:
- Legal defense and coverage for penalties against claims of alleged or actual breaches of fiduciary duties.
- Defense against lawsuits and regulatory actions related to a cyber breach.
- Expert-led response, notification and crisis management services to prevent a cyber incident from spiraling into a disaster.
Our Fiduciary with Cyber Package is now available with a one year commitment—and the annual fee is less then the cost of one hour of expert legal defense if a lawsuit or regulatory challenge catches you by unprepared. Get covered, in minutes, today: Protection for Plan Sponsors.
Review Contract Provisions
An additional strategy retirement plan sponsors use to reduce some of their fiduciary risk is through outsourcing. When doing so, it is critical to carefully review the contracts for clarity related to the specific “duties, responsibilities and indemnities assumed (and not)…” Going further, best practice, whenever contracting with professionals to serve the retirement plan, is to obtain a statement in writing about what, if any, fiduciary responsibilities are being undertaken. While selecting and monitoring service providers, plan sponsors also need to be vigilant about their cybersecurity protocols, as described in the DOL’s Cybersecurity Guidance. Even with great diligence, its important for plan sponsors to remember they can never fully eliminate the possibility of cyber and fiduciary breaches. Why take unnecessary risks? The annual cost of Colonial’s Cyber and Fiduciary Liability coverage is less than the fee for one hour of expert legal defense if a lawsuit or regulatory challenge strikes. Get covered, in minutes, today:
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.