When seeking to maximize the benefits participants reap from a 401k, it’s easy enough for plan sponsors to identify positive-sounding marketplace innovations. Typically, what’s more difficult is making decisions and implementing changes, given the high standards of ERISA law—and today’s litigious environment. Read on for perspective.
Proceed With Care
Of course not every emerging trend is worth acting on, and the same holds true for the plethora of “bells and whistles” service providers offer. Nonetheless, some innovations are worth a look. For example, industry expert David Levine points out that roughly 25 years ago, automatic enrollment was innovative. It has been so successful, that now it’s common practice. According to Levine, change remains both important and possible, but must be undertaken wisely: “Innovative solutions hold the potential to improve the outcomes for participants in the modern retirement system. However, innovation can be scary in a litigious environment. But keeping in mind that ERISA is flexible can allow advisors and their clients to further improve the retirement services they offer plan participants and beneficiaries.”
Although ERISA law does hold fiduciaries, including plan sponsors, to exceptionally high standards, innovations that benefit participants and are decided upon using prudent decision making processes—which are diligently documented—are always a possibility: ERISA law is not prescriptive. As experts explain:
ERISA is not a prescriptive law; plan sponsors, fiduciaries and advisors have wide latitude in their decisions. As recent litigation trends have illustrated, no type of feature or investment, from target date funds to low-cost solutions and other innovative products, appears to be “safe” from a legal challenge. As a result, regardless of whether a plan sponsor, fiduciary or advisor recommends or utilizes a widely adopted solution or a newer, more innovative solution, documentation in whatever form might be appropriate for the situation is key.
In addition to obtaining expert support navigating ERISA standards and best practices, plan sponsors are wise to study up on the current environment for litigation and regulatory enforcement before leaping forward with changes to plan design and operation. Advisors can of course be very helpful in steering the plan into the future successfully:
Ideally, for a plan sponsor, its fiduciaries and its advisor, enforcement and litigation concerns would not be a concern in reviewing innovative solutions. But the practical reality is that the specter of enforcement and litigation hangs over any innovative product. Is the risk of enforcement or litigation a reason to not look at an innovative solution? No. However, advisors can support their clients by helping them approach decisions whether or not to use innovative solutions under ERISA’s fiduciary standards. Despite what might be asserted in litigation, there is usually no one “right” way to make a decision, so an advisor can help each client chart their own individual path.
While assessing new plan possibilities, it is best practice (and very wise) for sponsors to revisit risk management plans, ensuring all necessary coverage is in place and up to date. Remember, national expert, Colonial Surety is here to help. Just select an affordable package and receive a three point coverage solution in minutes, which includes:
- The ERISA bond required to protect the assets of the retirement plan from theft.
- Fiduciary Liability Recovery to protect you and your assets from personal liability.
- Cyber Liability coverage to safeguard your company and plan from covered losses and expenses in the event of a cyber breach.
Scouring To The Ends of The Earth?
Fortunately, ERISA law does not require plan sponsors to continuously seek, find and operationalize every innovation that comes along. Of course it’s useful for plan sponsors to be open to new approaches that can benefit participants and be alert for opportunities to increase participant well-being. Summing up, the National Association of Plan Advisors notes:
The history of the modern retirement system is filled with solutions that have been adopted widely — such as target date funds, for example — as well as solutions that, while considered promising, have not been adopted widely. No provision of ERISA requires that a fiduciary scour the ends of the earth for every potential investment option, plan feature or other solution. As such, a plan sponsor, fiduciary or advisor is not required to consider — or not consider — a potentially innovative solution. In some cases, however, reviewing multiple potential options may be a beneficial approach.
Don’t forget: in today’s litigious environment, the responsibilities inherent with an employer sponsored retirement plan make Fiduciary Liability Insurance a must-have for sponsors. At Colonial, 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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