Outsourcing Fiduciary Responsibilities?


Wisely, given the complexities, it’s common for employers to outsource the services and administration of the company sponsored 401k. Despite these arrangements, however, it’s important for plan sponsors to understand that ERISA responsibilities–and liabilities–can never be completely eliminated through outsourcing.

 Protection Is A Must

As a plan sponsor, you are a fiduciary: ERISA law obligates you to be more careful with the retirement assets of your employees than you are with your own money. Failures and even oversights can result in being held personally liable  by the U.S. Department of Labor. Indeed, under the high standards of ERISA law, plan sponsors retain fiduciary responsibilities even when contracting with 3(16) plan advisors who are also held to fiduciary standards. Attorney Lyndsey Barnett of Bricker Graydon offers these pointers for plan sponsors related to current fiduciary standards:

  • A fiduciary is anyone who exercises any discretionary authority or control over management of retirement plan, or management or disposition of plan assets. This can include trustees, investment managers, committees, agents who provide advice for a fee, and company owners….
  •  Even if a plan sponsor hires a 3(16) plan administrator, there is no way to completely outsource all of your fiduciary duties….
  •  Under current regulations, the fiduciary has four areas of duty: loyalty to the participants, prudence in running the plan, the ongoing duty to diversify and minimize risk, and the duty to follow plan documents—unless they violate ERISA rules.
  •  Fiduciary officials can be held liable if the fiduciary duty is breached; or if they conceal, enable, or participate in a breach; or discover or fail to act on a breach.

Successful 401k plan sponsors understand their fiduciary responsibilities and leverage compliance assistance from the U.S. Department of Labor. Of course, despite diligence, mistakes and oversights can still occur. Best practice involves arranging for periodic plan audits and making use of the DOL’s voluntary correction procedures, which were made easier under SECURE 2.0. This DOL Checklist for the Voluntary Fiduciary Correction Program breaks down the steps necessary to proactively address identified ERISA compliance errors.

Another  best practice for 401k plan sponsors is reducing the fiduciary risks via liability insurance. At Colonial, a whole year of Fiduciary Liability coverage is less than a few dollars a day, and we even include Cyber Liability coverage to further  protect the business and retirement plan.

Armed with Colonial’s liability coverage, if you face claims of alleged or actual breaches of duty in connection with the employee retirement plan, you’ll be protected with defense costs and penalty limits up to $1,000,000. Protect yourself and your business, for a few dollars a day, now:

Obtain Fiduciary With Cyber Liability Insurance Right Here

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