Plan sponsors: take note! The U.S. Department of Labor has established new regulatory guidelines related to your fiduciary duties when selecting investments for 401(k) and other defined-contribution plans.
Select Investments Based On Financial Returns and Risks
The U.S. Department of Labor (DOL) periodically reviews the application of the fiduciary duties of prudence and loyalty that are detailed under the Employee Retirement Income Security Act of 1974 (ERISA). The new final rule, Financial Factors in Selecting Plan Investments addresses the DOL’s concerns about investments promoting “non-pecuniary” benefits related to environment, social and other governance goals (aka “ESG”).
As stated on the DOL Fact Sheet :
Marketers may be inappropriately targeting ERISA individual account plans (or 401(k)-type plans) for investment products represented to promote benefits and goals unrelated to financial performance. As a result, participants may be offered funds that accept lower returns or higher investment risks in order to pursue ESG objectives. Moreover, these ESG funds may often come with higher fees, because additional investigation and monitoring are necessary to assess an investment from an ESG perspective.
The rule does not categorically prohibit the fiduciaries of such plans from considering or including, as designated investment alternatives, investment funds, products, or model portfolios that support non-pecuniary goals if the plans allow participants and beneficiaries to choose from a broad range of investment alternatives…. However, the rule makes clear that the fiduciaries must first satisfy the prudence and loyalty provisions in ERISA and the final rule, including the overarching requirement to evaluate investments solely based on pecuniary factors when selecting any such investment fund, product, or model portfolio.
Fiduciary Responsibilities of Plan Sponsors
The expectation of the DOL is that the final rule results in: higher returns to plan investors by preventing fiduciaries from selecting investments based on non-pecuniary considerations and requiring them to base investment decisions on financial factors.
If your company sponsors an employee benefit plan, such as a 401(k) plan or other retirement plans under ERISA, you are considered a fiduciary if you are involved with the management of that plan. As such, you can be held personally liable to the plan’s participants/beneficiaries for breach of duties: your personal assets are at risk if you do not carry out your required fiduciary obligations.
If your company is a small company, it is particularly important to consider the fact that as a fiduciary, it is your responsibility to select advisors and investments, hire the plan’s record keeper, minimize expenses, and carefully follow plan documents. Under ERISA, you are mandated to demonstrate prudence and loyalty to plan participants when making those decisions.
Thousands of lawsuits each year expose fiduciaries to claims such as failing to make timely contributions, not following plan documents, failing to prudently invest to meet employee expectations, paying excessive fees, and failing to respond to requests for rollovers, distributions, and investment changes. This is why it is so important for plan sponsors to obtain fiduciary liability insurance. While the mandated ERISA bond covers the plan for any loss by theft, it does not cover fiduciaries for lawsuits brought by third parties.
Plan sponsors can count on Colonial Surety Company, an ERISA bond expert, for a full service solution. When you choose an ERISA bond package from Colonial, you receive a discount on ERISA bond coverage for your plan; Fiduciary Liability coverage for yourself as the plan sponsor; and, the option to add on Cyber Liability coverage. Save time, money and stress: Obtain a Colonial Surety ERISA Bond Package.
Protect Retirement Savings
As reported by the Society for Human Resource Management:
“Protecting retirement savings is a core mission of the U.S. Department of Labor and a chief public policy goal for our nation,” said U.S. Secretary of Labor Eugene Scalia. “This rule will ensure that retirement plan fiduciaries are focused on the financial interests of plan participants and beneficiaries.”
In addition to staying informed about new regulations, plan sponsors must continue to ensure that their ERISA bond is up to date and properly covers the plan. Only companies named on the Department of Treasury’s listing of approved sureties are able to provide ERISA fidelity bonds. Colonial Surety Company’s affordable ERISA bond packages include extended coverage to ensure your ERISA bond remains US Department of Labor complaint, When you choose your package, don’t forget to include Fiduciary Liability insurance to protect yourself from covered acts as the plan sponsor. With our fiduciary liability insurance, you’re covered for defense costs and penalty limits up to $1,000,000.
Colonial Surety Company is a direct to consumer, digital insurance provider, serving all 50 states and U.S. Territories. Colonial’s I-Bonds® are available for instant quote, and purchase. Print or e-file your bond from your desktop or mobile device. Choose your ERISA Bond Package Today!