Plan fiduciaries have a lot of obstacles to avoid during plan administration to avoid fiduciary breaches, but the most common breach of fiduciary duty is for a plan that has unreasonable fees and expenses. This sounds like something that can easily be avoided, but with investment banks and hedge funds charging higher fees due to good reputations, but returns not necessarily justifying those fees, it can be extremely hard to avoid breaching your fiduciary duty.
ERISA requires plan sponsors and fiduciaries to ensure that all plan services are necessary and that all fees and costs for those services are reasonable. What is considered “reasonable” is the problem that plan fiduciaries are often not aware of. The only real way for plan fiduciaries to show that their plan fees are reasonable is through benchmarking. Benchmarking involves comparing your service provider fees to competitors or averages for similar services. Identify all services provided by each provider to determine any differences that could explain any differences in prices. Trying to get as much information as you can to have an apples-to-apples comparison so you can to provide the most thorough benchmark.
It is extremely easy for the investment of even a widely lauded financial firm to go south if the market itself does or even just not perform as well as the market in general. Hedge funds often require higher fees but perform worse than index funds. But sometimes, they provide better returns. If they do not, however, you could be seen as having unreasonable fees, especially if index funds outperform your investments. There is a risk and a reward and the only way to cover yourself in case of failure is 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.