Law experts explain the uptick of class action suits alleging mismanagement of retirement plans by fiduciaries. Although courts have dismissed a few of the cases, most of the motions to dismiss have been denied. Having a relatively small plan is not a source of protection, since legal precedents have paved the way for fiduciary breach allegations against plans of all sizes.
Explosion of Litigation?
Since plan sponsors wisely outsource many duties to third parties, they sometimes erroneously believe that they no longer have the fiduciary risks associated with the high standards of the Employee Retirement Income Security Act (ERISA). This is a faulty assumption. Although fiduciary risks can be mitigated, plan sponsors retain fiduciary obligations—and are being caught up in the explosion of class action lawsuits across the country. As The National Law Review explains:
Since January 2020, the number of Employee Retirement Income Security Act (ERISA) class actions targeting the alleged mismanagement of 401(k) and 403(b) defined contribution employer-sponsored retirement plans has exploded. During that time, more than 150 of these class actions have been filed nationwide. These suits generally contend that plan sponsors and other plan fiduciaries have breached their fiduciary duties under ERISA by authorizing the plan to pay excessive recordkeeping fees and/or by selecting plan investments that charged excessive investment management fees or that underperformed. The complaints in these “fee litigation” cases seek tens of millions of dollars in damages. In 2021, motions to dismiss were granted in about a dozen cases, but courts have denied such motions in many others.
Archer Law observes that any person involved in the management of a retirement plan,“whether direct or indirect,” has fiduciary obligations. Diligence choosing and monitoring service providers and communicating about choices with participants are among the essential responsibilities of plan sponsors. But, it’s also important for plan sponsors to be prepared—and protected—in the event of a lawsuit over a breach of fiduciary duties. Understand that even allegations of a fiduciary breach divert attention and resources from work—and life. For example, if you suddenly needed an ERISA attorney, you would likely pay upwards of $600—per hour.
Colonial Surety is here to help. As a longstanding and trusted national provider of ERISA fidelity bonds, we’re committed to ensuring that plan sponsors from small and mid-size businesses can afford the insurance demanded by these challenging times. Our multi-year packages enable plan sponsors to secure fiduciary liability insurance at locked in rates with annual premiums that cost less then one hour of ERISA legal advise. We even include $50,000 of Cyber Liability Insurance. We make it so efficient and reasonable that you can secure insurance in minutes, now: Fiduciary with Cyber Liability Insurance.
Armed with Colonial’s Fiduciary-Cyber Pack, if you face claims of alleged or actual breaches of duty in connection with the employee retirement plan, you’ll be covered for defense costs and penalty limits up to $1,000,000. Plus, in the event of a cyber breach, your business—and plan—will receive support at every stage of incident investigation and breach response, as well as coverage against lawsuits or regulatory actions related to the breach.
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Many of the allegations against retirement plan fiduciaries center on the intense scrutiny of how the investment options offered participants are selected, benchmarked, and, if warranted, removed from the plan. Failure to act by removing poorly performing investment options can result in losses to retirement savings of participants. That’s why the inaction of retirement plan sponsors can result in fiduciary breach claims.
From acting on the Department of Labor’s cybersecurity guidance to implementing the recommendations on finding missing participants—and more–retirement plan sponsors are trusted to make sure each participant and each beneficiary receives each dollar due to them. That’s why ERISA law holds everyone with a role in managing retirement plans to high standards—which are actively enforced by the Department of Labor and its EBSA division. In 2021, for example, EBSA reports recovering a total of nearly $2.5 billion on behalf of retirement plan participants and beneficiaries. Over one thousand civil investigations were completed and most ended with both monetary and corrective findings. Experts caution that insufficient or expired ERISA bonds are a trigger for Department of Labor audits. In fact, failure to have current and adequate ERISA Bond coverage at all times is among the most common compliance issues plaguing retirement plan sponsors. Uniquely, Colonial Surety includes retroactive ERISA fidelity bond coverage for years when the plan was not adequately covered and provides cost-saving multi-year coverage, ensuring the ERISA bond remains Department of Labor compliant for the life of its term.
Our three point coverage package offers plan sponsors the greatest value, protection and efficiency. Conveniently, Colonial provides: the required ERISA bond to protect 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.
Proceed with confidence: Three Point Coverage 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, US Treasury listed and in business all across the country.