An increasing number of 401(k) sponsors and providers of retirement products are seeing lawsuits against them alleging, among other things, excessive plan fees in violation of ERISA and therefore, a breach of the plan fiduciary’s fiduciary duty. The DOL can define certain parameters that plan fiduciaries must meet, but these issues aren’t fully explored until they are tested in the courts.
As excessive fee cases have become more numerous, plaintiffs have gained experience and are becoming better and better at presenting their case of fiduciary breach due to excessive fees. Plaintiffs are making cases that fiduciaries are using improper benchmarks for determining plan fee reasonableness, acting imprudently by not considering options with lower fees like collective trusts, and are maintaining unreasonably high record keeping costs per participant. Funds used by the plan may have excessively high fees for the yield expected, even if those same fees wouldn’t be excessive if the investment had higher yields. Fees could also be seen as excessively high if a plan investment doesn’t have the performance history to justify those fees.
Judgments are made based on the time of the investment, not in hindsight, but plan fiduciaries still have to be vigilant and cover their bases, making sure that all plan investments have solid reasoning behind what you’re paying for them.
With more and more excessive fee cases hitting the courts, what you think is a reasonable investment may be considered by the court to have excessive fees. Things change quickly with court rulings and what was deemed solid when you learned how to invest may be considered a fiduciary breach today.
Until the court rules on these cases and establishes precedent, it’s impossible to know what exactly a plan fiduciary can and cannot do. That’s why you need to protect you and your business with fiduciary liability insurance.
How can you make sure you’re personally protected from a fiduciary breach? Fiduciary liability insurance!
Where the ERISA fidelity bond is set in place to protect the participants of the plan it, however, does not protect YOU as the fiduciary.
Colonial Surety Company is a Treasury Listed surety company providing ERISA fidelity bonds packaged with fiduciary liability insurance that includes a cyber liability insurance endorsement at no extra cost. Colonial is one of the leading providers of ERISA related products, offering bonds approved by the Department of Labor. We make it easy to obtain your bond instantly as well as allowing you to purchase retroactive insurance for the years the plan was not previously covered.
Under ERISA, fiduciaries may be held personally liable for a breach of their responsibilities in the administration or handling of employee benefit plans. Under ERISA 410, the plan cannot relieve you of this responsibility with indemnification language, however, it specifically permits persons with personal liability to purchase fiduciary liability insurance. Covering yourself with fiduciary liability insurance gives you a piece of mind that you are protected. Learn how to bundle your ERISA bond and fiduciary liability insurance for a discounted rate.