What might it look like if a lawsuit alleging excessive fees—and failure to adequately monitor service providers—landed on your desk? For starters, piles of plan documents and records—including minutes from meetings about the plan—would be requested and scrutinized. You’ll be asked to support your decision making processes and your sign off on everything from selection and review of investment options to service providers.
ERISA law experts urge plan sponsors to sweat the details, especially when it comes to understanding fees, choosing providers and recording all prudent process actions. Indeed, the importance of digging into the details is underscored by the current storm of lawsuits alleging violation of ERISA fiduciary duties. For example, the National Association of Plan Advisors (NAPA) reports that some of the allegations involved in just one of the many cases currently in litigation include:
- Adopting a monitoring process that relied upon subjective opinions of conflicted fiduciaries and CSPs to determine whether to remove a fund.
- Selecting and retaining for years Plan investment options with unreasonable expenses and poor performance relative to other investment options that were readily available to the Plan, such as low-cost passively managed funds or the least expensive available share class of actively managed funds with a long-standing history of out performance.
- Including investment funds with expense ratios far in excess of other options available to the Plan, such as institutional share class mutual funds and collective trust funds.
- Providing numerous actively managed funds with much higher fees compared to index funds, which resulted in significant underperformance to lower-cost higher-performing investment alternatives that were readily available and appropriate.
Perhaps not surprisingly, as ERISA lawsuits impact businesses across the country, the U.S. Chamber of Commerce points out that there’s been an increase in the cost of fiduciary liability insurance—making it harder for plan sponsors and other fiduciaries to secure protection. That’s why Colonial Surety offers affordable protection to plan sponsors from businesses of every size. Plan sponsors from small businesses no longer have to forgo coverage: Colonial’s annual premium for fiduciary liability insurance costs less than just one hour with an ERISA lawyer in the face of claims alleging breaches of duty in connection with the employee retirement plan. When you obtain fiduciary liability insurance from Colonial Surety, you’ll have defense costs and penalty limits up to $1,000,000 in the event of a covered lawsuit. We even include Cyber Liability Insurance, lock in multi-year rates and offer installation payments. Get protected here in minutes: Fiduciary Liability Insurance.
As Emily Costin, a partner at the firm of Altston & Bird in Washington, DC, sums up for Plan Sponsor: “A plan sponsor can do everything right and still be a target. Anyone can get sued…” According to Costin, the only real takeaway from excessive fee lawsuits so far is that plan sponsors must have a good process. Even so, there is no way of preventing a lawsuit from being filed. Another harsh reality for small businesses is that copycat cases leveraging the precedents set in larger cases are disrupting smaller businesses, and even causing closures, as defense costs, fines and settlements become too much to absorb.
There’s no need to go it alone though. Colonial’s helping plan sponsors across the country to secure a three point protection plan. Colonial’s multi-year packages provide convenience and value, ensuring continuous compliance and protection. Packages include:
- The required ERISA bond which 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.
Colonial Surety Company is a leading, national, direct seller and writer of surety bonds, fidelity bonds and insurance products for a wide range of professionals and industries.
We are 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.