Cyber

Plan Fees?

08.19.2021

 

Hefty plan fees are often the central issue in the rising tide of 401k lawsuits. There were a record number of 401k lawsuits in 2020 and business experts anticipate litigation will advance at a rapid pace, aided by the ripple effect precedent creates. Plan sponsors must work to understand plan fees and guard against related fiduciary breaches.

What’s The Fee Structure?

As a plan sponsor, if you do not know—or understand—the fee structure of your plan, that’s a problem.  Remember, you are a fiduciary and therefore you are responsible to your participants and their beneficiaries for ensuring that the fees are reasonable. Of course the challenge for plans sponsors is that fees are often buried and hard to uncover. In a litigious environment, it is especially urgent for plan sponsors to double down on their efforts, ensuring they understand and monitor the fee structure for the plan. Here is guidance from Forbes to get you started:

It is important to focus on the fee structure of a retirement plan, especially the expense ratio. The ideal expense ratio is 0.20% or less, while anything above 1% is indefensible and usually is representative of “revenue sharing”. Revenue sharing is defined as a deliberate overcharge at the expense ratio level used to pay the vendors of the plan such as a third-party administrator, record keepers, brokers, or financial advisors. These hidden overcharges come in the form of eroded returns and have been at the heart of a great deal of these 401k lawsuits. These fees are difficult to uncover and are typically buried deep within the Service Provider 401k Fee Disclosure Document, form 408(b)2.  

 A 401(k) plan with a total “all-in” fee, where total costs are expressed as a percentage of assets in the plan, between 0.50% to 1% is typically okay, depending on the size of the plan. The Department of Labor requires employers to monitor these fees and failure to do so is considered a fiduciary breach that can result in stiff fines and penalties. High expense ratios with revenue sharing fees built-in can lead to a significant negative impact on an individual’s bottom line over the lifetime of the investment.

Of course fees that are excessive are a hindrance to retirement saving for everyone—you too. They are also a clear violation of your fiduciary responsibilities–and a fast track to a costly and damaging ERISA lawsuit. According to ERISA law, all fiduciaries associated with a retirement plan can be held personally accountable to the plans’ participants and beneficiaries for a breach of fiduciary duties. Even if you are not at fault or liable, you can still be sued—personally—and defending yourself can be ruinous.

Fees for lawyers with the expertise needed are about $650—per hour.

 

In addition to doubling down on efforts to understand plan fees and monitor service providers, it is important for plan sponsors to have protection. Colonial Surety offers affordable and comprehensive protection packages  for plan sponsors which provide up to $1,000,000 of fiduciary liability insurance. Colonial’s fiduciary liability insurance covers your business—and you as the fiduciary—against claims of alleged or actual breaches of duty in connection with the employee retirement plan. Annual premiums total less then just an hour or two with an ERISA lawyer. Get protected now: Choose Your Plan Sponsor Protection Package Here.

 Monitor Cybersecurity Too

As you monitor service providers, don’t forget to ask for their cybersecurity practices and protocols. Specifically, be sure you are following Employee Benefits Security Administration’s Tips for Hiring A Service Provider With Strong Cybersecurity Practices. For example, make sure your service provider contracts explicitly detail how the provider will continuously comply with cybersecurity standards and best practices on behalf of your retirement plan and participants.

Don’t neglect your own cybersecurity protections, either. Cybersecurity is a challenge for every business and especially difficult for small businesses. Many end up shutting down as the loss of money, time and reputation from a cyber breach becomes too much to overcome. A cyber breach is not always a disaster—but mishandling it is. Along with Fiduciary Liability Insurance, Colonial can also provide you with Cyber Liability Insurance. This arms you with protection to mitigate the damage to your business and customers in the event of a cyber breach. When your business experiences a cyber breach, an expert response team will be at your service, providing the comprehensive technical, legal and  crisis management services needed to curtail the damage and keep your business going. Cyber Liability coverage also indemnify your losses from covered lawsuits or regulatory actions related to the breach.

Let Colonial Surety get you covered efficiently and affordably today. Opt for cost-saving multi-year coverage, ensuring the ERISA bond required by the Department of Labor remains in compliance. When you choose a package, you will have: the required ERISA bond that protects the assets of the retirement plan from theft; Fiduciary Liability coverage to protect you and your assets from personal liability; and, Cyber Liability coverage to safeguard your company and plan from covered losses and expenses in the event of a cyber breach.

With Colonial, you can easily and quickly secure your affordable coverage package right now: Complete ERISA Bond Package.

Serving customers since 1930, Colonial Surety is 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.

 Colonial Surety Company is rated “A Excellent” by A.M. Best Company, U.S. Treasury listed and in business all across the country.