With miles to go, 2025 has already been an eventful time for retirement plan sponsors. National risk management experts explore the complications confronting sponsors in this period of “shifting sands,” and recommend strategies, solutions and tools to mitigate the risks.
Keeping Up with Evolving Responsibilities
Under ERISA, retirement plan sponsors are fiduciaries, with legally binding obligations to act in the best interest of plan participants. Sponsoring a retirement plan, like a 401k, means you can be held personally liable for mistakes or oversights with the plan, and you can never fully eliminate this risk, even through outsourcing. Accordingly, retirement plan sponsorship has always been a substantial responsibility, but the pressures and uncertainties involved have been mounting, as Richard Clarke, Chief Insurance Officer for Colonial Surety Company, has recently explained at the National Association of Plan Advisors:
It’s clear this year has been particularly eventful for plan sponsors. From the continued rollout of SECURE 2.0 provisions, heightened scrutiny around retirement readiness and participant outcomes, to the potential of inclusion of private equity in 401(k) plans, plan sponsors are under growing pressure to keep up with evolving responsibilities. It’s evident that failure to do so can lead to a mountain of problems, especially considering there has been a rise in ERISA-related litigation. This uptick in fiduciary related litigation underscores the need for plan sponsors to proceed cautiously and stay vigilant. For plan sponsors, just as they get a handle on one new complexity, another wave of challenges emerges. If 2025 signals anything, it’s that risk management is paramount and insurance is certainly becoming more important. Plan sponsors who establish the proper safeguards to mitigate risks associated with potential fiduciary breaches will be best suited to support plan participants securely and confidently.
Perhaps one of the most challenging aspects of retirement plan sponsorship is that even if nothing has been done wrong, investigations and allegations have proven to be financially and reputationally damaging to businesses and their owners. Given the “shifting sands” of regulations, litigation, products, and choices currently involved in retirement plan sponsorship, it’s becoming more and more essential to mitigate risks. For example, Clarke reminds sponsors that there are “strategies, solutions and tools” that do reduce risks, and recommends these actions:
- The first step is a comprehensive assessment of any gaps in current processes. This may involve revisiting plan designs, investment options, and administrative procedures to identify and tackle potential risks. A regular cadence for re-examining fiduciaries’ responsibilities, compliance needs, and measures should be implemented.
- To support these initiatives, fiduciaries can lean on compliance as well as investment monitoring platforms. Additional tech stacks to consider are solutions that streamline retirement plan management while also improving employee communication and engagement.
- ….A powerful tool is fiduciary liability insurance…..It offers defense coverage and fund settlements or judgments for liabilities under ERISA, as well as allegations related to administrative mistakes in managing internal employee benefit plans. While ERISA law does not mandate fiduciary liability insurance, given the puzzling elements currently at play, it is highly recommended that plan sponsors stay on the side of caution and protect themselves and their company.
Good To Do: Avoid Small Mistakes
Former Assistant Secretary of Labor for the Employee Benefits Security Administration, Lisa Gomez cautions that small mistakes, unchecked, can lead to bigger problems for plan sponsors: “Everybody makes mistakes from time to time, but there are lots of times where if a plan is doing certain things incorrectly as far as required and basic disclosure filings, then it’s an indication that there could be a bigger problem, and not really an understanding that they are wearing the fiduciary hat.” For example, late, incomplete or erroneous filings of Form 5500 can be an indicator that “Where there’s smoke, there’s fire. Where there are smaller issues, there’s probably some other issues.” Similarly, failure to have an active, up-to-date ERISA Fidelity Bond, as specifically required by the Department of Labor, can be a red flag for both the IRS and the DOL.
Ready for help—and protection? As a leading, national, U.S. Treasury-listed ERISA Bond writer, Colonial Surety Company makes it easy for plan sponsors to keep their bonds compliant—-and offers an affordable Fiduciary+ Cyber Liability Insurance bundle specifically to protect retirement plan sponsors. For a few dollars a day, you’ll be armed with:
- $1,000,000 for Defense and Penalties if you are faced with alleged or actual breaches of fiduciary duty.
- Cybersecurity Coverage for the business and plan, which addresses Department of Labor recommendations, and includes expert response services to curtail damage after an incident.
Reduce your risks in minutes. Get protected now:
Fiduciary+ Cyber Liability Insurance
Colonial Surety Company:
- In business since 1930
- Rated “A” Excellent by A.M. Best Company
- US Treasury Listed