Now What?



Winning lawsuits against 401k plans have established precedents that are fueling more claims. Industry experts urge plan sponsors to examine the underlying basis of most of the claims. Doing so offers a roadmap for steering forward.


Minutia Matters

Experts say that the “most popular claims” against 401k plans are over fees, investment returns and the availability of investment choices. Though allegations will always be a threat, increased focus on the details behind mistakes that can contribute to claims is vital. Here, for example, is a list of some areas for plan sponsor attention, suggested by experts at the National Association of Plan Advisors (NAPA):


Depositing salary deferrals on a timely basis is a requirement for plan sponsors. This task must be accomplished expeditiously. The DOL is laser-focused on plan sponsors that make late deposits of salary deferrals, including incorporating a specific question about any late deposits on the Form 5500.


Accurately tracking employee eligibility is a requirement for every retirement plan. Regardless of the plan’s eligibility formula, plan sponsors must make employees aware of their plan eligibility once they become eligible. It’s important for plan sponsors to make sure that plan operations are carried out in accordance with the terms of the plan document. Failing to identify and include eligible employees is costly. Unfortunately, corrective contributions must go to all affected employees—regardless of whether they intended to make salary deferral contributions or not.


The definition of compensation can be a big problem. The conundrum occurs when a 401(k) plan sponsor uses a definition of compensation for purposes of salary deferrals and employer contributions that differs from the one specified in the plan document. Mistakes do happen, of course; however, the longer a mistake lingers the more expensive it is likely to become!  


As you get your to-do list going, keep in mind that no matter how diligently you strive to fulfill your fiduciary obligations, and no matter how small your retirement plan is, there’s no guarantee that you won’t be named in a lawsuit. Allegations of a fiduciary breach put your personal assets at risk. Why take chances?  At Colonial Surety, you can affordably obtain fiduciary liability insurance and get peace of mind that your personal assets are protected from a breach of responsibility in the administration or handling of the employee retirement plan. With an annual premium that is less than what you would pay for just one hour with an expert ERISA lawyer if disaster strikes, Colonial can help you quickly obtain fiduciary liability insurance now: Fiduciary Liability for Plan Sponsors Here.


Good To Know

ERISA expert Ary Rosenbaum reminds plan sponsors: “You’re not just a 401(k) plan sponsor, you are also a plan fiduciary. No matter what you do or who you hire and what they do, understand that you’re almost always going to be on the hook for liability. If your third-party administrator (TPA) screws up your compliance testing or fails to prepare your Form 5500, you’re still responsible no matter what. Just remember that and why you need to be organized.”


Helpful Resources

It’s useful for plan sponsors to periodically review the Department of Labor’s summation of fiduciary responsibilities and related protocols for choosing a service provider, assessing the fees and monitoring the services  It’s also essential to understand and act on the Employment Benefits Security Administration’s guidance in three parts for mitigating the threat of cyber crime against retirement accounts: Tips for Hiring a Service Provider; Cybersecurity Program Best Practices; and, Online Security Tips.


Mistakes do happen—and plan sponsors who become aware of ERISA violations can proactively seek to course correct  via EBSA’s Voluntary Fiduciary Correction Program (VFCP) and/or Delinquent Filer Voluntary Compliance Program (DFVCP). The 401(k) Plan Fix-It Guide  from the IRS also provides support for identifying and correcting past mistakes.


Colonial’s here to help too with multi-year packages that provide plan sponsors across the country with  convenience, value—and protection. Lock in your coverage and rates now. We even offer multi-year rates and installation payments. Packages include:


  • The required ERISA bond which protects the assets of the retirement plan from theft.
  • Fiduciary Liability Insurance to protect you and your assets from personal liability.
  • Cyber Liability Insurance to safeguard your company and plan from covered losses and expenses in the event of a cyber breach.


Colonial makes it so easy and reasonable to secure this coverage that you can do it now, right here: Complete Plan Sponsor Package Here.


Colonial Surety Company is rated “A Excellent” by A.M. Best Company, U.S. Treasury listed and in business all across the country. Serving customers since 1930, we are the trusted source for the pension industry to secure legally required ERISA bonds, fiduciary liability insurance and cyber-liability insurance. With a Trustscore of 4.8, we help safeguard plan sponsors, pension professionals and financial advisors — and keep their businesses compliant — with pain-free, efficient, and friendly service every time.