As a plan sponsor, one of your critical duties is the selection and monitoring of the plan service providers. If they make an error, you could be held personally liable. Though you can never fully eliminate the risk of exposing your personal assets, you can mitigate your risks. Experts offer guidance.
Vigilant Provider Selection
As a fiduciary, you owe your highest duty of care to the employee retirement plan. Pension plan expert Ary Rosenbaum explains that one of your critical responsibilities is the selection of plan service providers:
Being a fiduciary means that you’re responsible for the retirement assets of your employees. Being responsible for their money means you need to be more responsible than you are with your own money. You have to provide the highest duty of care and any breach of that duty could result in personal liability. You can always delegate some or all of that duty to a retirement plan provider willing to serve as an ERISA fiduciary, but you can never fully eliminate liability in connection with your plan. Since you can never truly eliminate all the liability associated with a retirement plan, your job is to do your best to minimize it and one of the best ways you can do that is by hiring competent plan providers that can carry some of the load from the heavy lifting you need to complete as a plan sponsor.
Because plan sponsors retain personal liability, it’s wise to obtain fiduciary liability coverage. No matter how diligent we are in our duties, we can face claims of actual or alleged breaches of our fiduciary obligations—and be held personally accountable. Even defense can be ruinous, with expert legal fees topping $600—per hour. Why risk everything you have worked for? The annual premium for Colonial Surety’s fiduciary liability insurance costs less than just one hour with a lawyer if disaster strikes. Protect your business and yourself as the plan sponsor—against claims of alleged or actual breaches of duty in connection with the employee retirement plan. Colonial’s Multi-Year Packages provide the greatest convenience, value, and protection, and include the ERISA bond required by the Department of Labor, Cyber Liability Insurance—and Fiduciary Liability Insurance. Choose Your Plan Sponsor Protection Package Here.
Failure To Recognize Errors?
One of the reasons you need to hire competent plan providers is because you’ll be on the hook for liability for the errors they cause. Given the labor-intensive and detail-oriented work of day-to-day recordkeeping, Third Party Administrators (TPAs) can make an error that is not uncovered until much later—or during an audit. As noted in JD Supra:
Errors detected years later are always more expensive to fix than errors detected soon after they’re created. If the errors are serious and detected on a government audit, there is always a possibility of a penalty added…. Finding good plan providers, especially a TPA, goes a long way in making sure there are very few errors. The problem with errors is they run the gamut, small errors that can be easily fixed or very large errors such as failed compliance tests that require thousands of dollars to fix. Another catastrophic error is the failure to file a Form 5500 and there is nothing more unsettling for a 401(k) plan sponsor to get a bill from the Department of Labor (DOL) for over $100,000 for a missing Form 5500. While a plan provider may have an errors and omissions insurance policy to fix an error they made or are willing to make another form of remuneration, the point is ultimately, you’re on the hook for liability.
A best practice in working with TPAs is to periodically scan the field for advancements that help with error reduction. In doing so, try not to get distracted by flashy tech features and sales presentations. New online tools for participants are of course interesting—and might be helpful—but don’t forget to inquire about the features and services that actually help reduce errors. Fewer errors mean less risk for everyone. Don’t forget to inquire about cybersecurity too—and be sure your TPA is following the DOL’s guidance. Another important practice is to periodically invest in an independent review of your plan. If there have been errors, it’s much better to proactively detect and correct them than to allow them to linger.
No matter how diligent you are in your fiduciary duties, according to ERISA law, you can be held personally accountable to the plans’ participants and beneficiaries for a breach. Even when you are not at fault or liable, you can still be sued. Plan sponsors across the country trust Colonial Surety, for affordable and comprehensive protection packages. Uniquely at Colonial, plan sponsors can obtain affordable fiduciary liability insurance and cyber liability coverage along with the required ERISA bond. Our comprehensive ERISA bond packages offer plan sponsors up to $1,000,000 of fiduciary liability insurance. Get covered today—Colonial makes it quick and easy: Choose Your Plan Sponsor Protection 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. We help safeguard plan sponsors, pension professionals, and financial advisors — and keep their businesses compliant — with pain-free, efficient, and friendly service every time.