Failure to properly and promptly ensure employee contributions are remitted to the retirement plan is a serious problem. Although a very small fraction of employers have been found to have abused retirement contributions, the Department of Labor remains vigilant, as evidenced by a recent fiduciary breach allegation brought against the sponsor of a small plan.
Failure To Remit Assets
Plan Sponsor reports that the Department of Labor is suing an IT consulting firm in the U.S. District Court for the District of Minnesota “on one count of a fiduciary breach under the Employee Retirement Income Security Act.” The allegation is that during pay periods in 2021 and 2022, the employer withheld $45,972.08 “from its employees’ pay as employee contributions to the plan, retaining the deferrals and failing to remit the assets to the plan.” Note that while it is typically ERISA litigation concerning big businesses and big bucks that makes the news, the company in this case has just 27 employees and a total of under one million dollars in retirement plan assets. Of course, when it comes to protecting retirement funds, every participant and every dollar counts, every day. In a press release about the recent lawsuit brought by the DOL, Mark Underwood of EBSA underscores: ““Failing to forward voluntary employee contributions to employee retirement plans violates employees’ trust and denies workers the opportunity to earn interest on their investments and prepare for their future ….”
The Department of Labor’s Employee Benefits Security Administration (EBSA) regularly pursues violations of ERISA, recovering funds for retirement plan participants. Even when solid procedures, paid experts, and great diligence are in play, oversights can happen,which is why it’s always best for plan sponsors to be proactive about identifying and attending to errors. In fact, provisions in the SECURE 2.0 Act make voluntary corrections for the protection of participant benefits even more viable than previous regulations. Experts remind plan sponsors, that in accordance with DOL regulations: “Participant contributions must be remitted to the plan as of the earliest date on which such contributions can reasonably be segregated from the employer’s general assets or no later than the 15th business day of the month following the month in which the participant contribution amounts are received by the employer.”
As fiduciaries, it’s critical for plan sponsors to be aware of their responsibilities as laid out by the Department of Labor. Periodically setting aside time for the essential “housekeeping” associated with retirement plan administration is a good way to troubleshoot issues that might be on the verge of slipping through the cracks. It’s dangerous for plan sponsors to assume that the plan’s third party administrators and service providers are on top of–and responsible–for everything. The reality for plan sponsors is: fiduciary responsibilities can be reduced, but never eliminated. Experts remind us: “Some plan sponsors think if they outsource administration, oversight, or supervision of employee benefit plans, that they’re also outsourcing the liability. The liability exposure in that instance is the decision that’s made to utilize third party services.” Just like proactive error correction is best when sponsoring a retirement plan, so too is proactive protection. Indeed, national risk management guru (and Colonial Surety Company’s Chief Insurance Officer), Richard Clarke, finds that these days, “Fiduciary liability insurance is an indispensable measure to ensure sponsors and their businesses are protected with defense costs and penalty limits. Without such protection, plan sponsors are on the hook for costs related to legal and computer forensic services, call center services, credit and identity monitoring, and cybersecurity response services following a data breach.”
Colonial Surety is here to help with affordable fiduciary liability insurance. Armed with our 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. Uniquely, Colonial even includes Cyber Liability Insurance, locks in multi-year rates and offers installation payments. Conveniently, our Fiduciary With Cyber liability package is now available with a one year commitment. Protect yourself and your business, for a few dollars a day, now:
Good To Know
In addition to administering a robust process of civil investigation, corrective action and fund recovery, the DOL encourages everyone associated with retirement plans to be aware of the signs of potential fraud, including: The 401k or individual account statement is consistently late or comes at irregular intervals; the account balance does not appear to be accurate; the employer failed to transmit the contribution to the plan on a timely basis; a significant drop in an account balance that normal market movements cannot explain; and, the 401k or individual account statement shows contributions from a paycheck were not made.
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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.