As part of its intense focus on retirement security, Congress is considering new two-pronged legislation. If it passes, retirement industry experts anticipate that plan sponsors might face more trips to court stemming from fiduciary breach allegations. Here’s what the Employee and Retiree Access to Justice Act could mean.
Arbitration clauses in retirement plans have enabled many of the claims challenging the administration and fiduciary management of retirement plans to be resolved outside of court. The proposed Employee and Retiree Access to Justice Act could change that, resulting in more litigation. As Plan Sponsor reports:
If passed, the bill would modify the standard of review held by courts when a plan participant or beneficiary is refused retirement, health or other benefits under an ERISA plan. Andrew Oringer, a partner in Dechert’s ERISA and executive compensation group, says that the bill is two-pronged, and could have a dramatic impact on how plan participant cases are handled. The legislation tackles whether plaintiff litigants under ERISA…can be barred from bringing a class action claim by the terms of the plan, and if plan administrators are justified to apply discretionary clauses.“The main impact would be to blunt or even eliminate the trend of plans to have required arbitration and anti-class-action provisions added to the plan,” Oringer says…. The bill would also amend ERISA to prohibit any plan post-dispute arbitration clause, class action waiver, representation waiver or discretionary clause, and to abrogate enforcement for existing clauses.
Mounting a defense against allegations of fiduciary failings related to retirement plan management and administration creates an enormous strain on businesses of all sizes. As 401k Specialist reports: “Various proposed class actions in ERISA cases are currently pending in more than half of U.S. federal district courts. And it’s not just the jumbo plans that are getting sued anymore. Historically, the vast majority of plans being sued had over $1 billion in plan assets. Recently, sponsors with much smaller plans are being targeted.” The U.S. Chamber of Commerce observes that even without amendments to ERISA law, it’s become easier to bring “cookie cutter” fiduciary breach allegations against plans: “The lawsuits typically follow a familiar playbook, often with cookie-cutter complaints…Lawyers frequently find a plan sponsor to sue, advertise for current or former employees willing to serve as plaintiffs, and pursue the litigation.”
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Capitol Hill continues to focus on legislative measures addressing retirement security. In addition to the recently introduced Employee and Retiree Access to Justice Act, The Increasing Small Business Retirement Choices Act, and the Securing a Strong Retirement Act are making their way through the legislative process. Currently, the Employee and Retiree Access to Justice Act is under review by the House Education and Labor Committee, with “companion legislation” at the Senate Committee on Health, Education, Labor and Pensions. As one retirement industry expert sums up:
“If the law passed…then it is reasonable to conclude that a much greater number of claims would prevail, and because of that, it is reasonable to conclude that a much greater number of claims would be brought…”
Even without amendments, ERISA standards are among the highest known to law. Just the allegation of a fiduciary breach can spell disaster, putting personal assets at risk, while defense costs wrack up at about $600—per hour. Plan sponsors don’t have to go it alone though. Colonial Surety’s affordable Fiduciary-Cyber Liability Pack covers defense costs and penalty limits up to $1,000,000. Plus, in the event of a cyber breach, the business—and plan—will receive support at every stage of incident investigation and breach response, including implementation of obligatory investigation and notification procedures.
With litigation now also aiming at the intersection of ERISA law and cybersecurity, retirement plan sponsors and other fiduciaries have ever more need for protection. For the greatest value, protection and efficiency, plan sponsors across the country come to Colonial Surety for multi-year packages with locked in rates and installation payment options. Packages include:
- The required ERISA bondwhich protects the assets of the retirement plan from theft.
- Fiduciary Liability Insuranceprovides protection from personal liability.
- Cyber Liability Insuranceto safeguard your company and plan from covered losses and expenses in the event of a cyber breach.
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Serving customers since 1930, Colonial Surety is 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.
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