2022 began with the decision of the U.S. Supreme Court related to Northwestern’s fee litigation case, which left the retirement plan industry wondering about the implications. Looking back on the year, ERISA law experts can now say: yes, there has been another spike in litigation associated with fees. Here’s what to know—and do.
Courtroom Challenges on The Rise
According to David Levine of the Groom Law Group, three trends impacting retirement plan fiduciaries have emerged in 2022. Specifically:
First, the number of plaintiffs’ firms bringing lawsuits has continued to expand beyond the “usual” well-known players. Second, no investment, feature or service provider is immune from court challenge. Third, while there have been notable winds for the defense bar, a number of cases have moved beyond the early “motion to dismiss” stage of litigation into the more time- and cost-intensive litigation discovery process.
In the face of these trends, Levine underscores “Insurance for both advisors who could be named and plan fiduciaries is more essential than ever.” Indeed, given both precedence established as courts resolve lawsuits brought by plan participants and the high standards of ERISA law, it’s become more and more critical for retirement plan sponsors to protect themselves from personal liability. Colonial Surety is here to help with an affordable Fiduciary and Cyber Liability Insurance Pack that 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 Pack is now available with a one year commitment—and the annual fee is less than 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.
Action Steps Headed Toward 2023
Experts remind us that no one associated with the management of a company sponsored retirement account is “immune from litigation,” so advisors and plan sponsors should be alert “for plaintiffs’ lawyers asking questions about their plans or similar activities. Importantly, with the entry of more plaintiffs’ law firms into the ERISA litigation space, a lawsuit can appear with little warning, so an ongoing proactive process can serve as an essential backstop.” Additional guidance for advisors and plan sponsors from Groom Law Group includes:
- Investment Options. Lawsuits have moved beyond the typical focus on active investment funds or fee comparisons against these funds. Instead, plaintiffs’ lawyers have now brought a wave of lawsuits against plans utilizing low-cost passive target date funds. While industry pushback on these lawsuits has been swift and strong, advisors may be able to proactively assist their clients with continuing monitoring and documentation of their investment recommendations and decisions.
- Investment Solutions.Lawsuits continue to focus on products and services—whether rollover advice, managed accounts or other services. With new requirements of Prohibited Transaction Exemption 2020-02 now in effect and the expanding universe of managed accounts and other solutions, advisors would serve their clients well by reviewing their diligence processes when selecting and monitoring vendors and service providers.
The onset of a new year is also a logical time for plan sponsors to review their contracts with advisors and other retirement plan service providers. For example, ensure clarity related to the “duties, responsibilities and indemnities assumed (and not) by an advisor or a plan fiduciary.” 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. However, even with great diligence, plan sponsors need to remember they can never fully eliminate the possibility of cyber and fiduciary breaches—and the associated risk of being held personally responsible. 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:
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