Sponsors of retirement plans increasingly face claims for breach of fiduciary duties. Examples include cases concerning “excessive” 401(k) plan fees. The National Law Review offers some practical advice.
The Heavy Weight of Claims
According to the National Law Review, some lawsuits for breach of fiduciary duties by plan sponsors concern the investment choices made for the plans. Complaints revolve around why alternative lower cost options were not chosen—especially if the higher cost option results in lower returns then other options over time.
Whether claims are litigated or settled, they can be costly in terms of money, time and reputation. Imagine, as a plan sponsor, having to go up against the company’s past or present employees—and the related negative press? Think too about how paying for your personal legal costs would impact you?
These scenarios underscore why it is critically important for plan sponsors to protect themselves with fiduciary liability insurance coverage against claims of breach of fiduciary duties. While the ERISA bonds required by the U.S. Department of Labor protect the employee benefit plan, they do not cover plan fiduciaries.
As an expert in ERISA fidelity bonds, Colonial Surety Company offers plan sponsors a complete, coverage solution. With a package from Colonial, plan sponsors receive a discount on the ERISA bond—and affordable fiduciary liability insurance for covered claims against breaches of fiduciary duties. Colonial’s packages offer up to $1,000,000 of fiduciary liability insurance and are easy to obtain via Colonial’s direct and digital service.
How Decision Documentation Helps
As a plan sponsor, you are responsible for selection and review of the investment options for the retirement funds. Meticulously document the process you and the plan fiduciary committee use to make these choices. Be explicit. Keep minutes of committee meetings and detail decisions. If a higher fee option is selected, record the rationale.
As the National Law Review emphasizes:
An ERISA inquiry into a fiduciary’s conduct looks primarily at the decision-making process followed by the fiduciary, and less so at the substantive results of the decision.
Plan fiduciaries might have good and legitimate reasons for selecting a particular investment option even though that option might involve higher costs than other available options or there might be periods of time during which the fund’s performance does not match the performance of a particular benchmark or index.
Those reasons should be documented. Without documentation supporting the choices a plan fiduciary made, challengers can frame the debate in simple, relative terms that compare fees and returns to averages or benchmarks. As noted, fees and returns are never unimportant, but plan fiduciaries should never accept such simple characterizations because the actual process of selecting (and periodically reviewing) an investment lineup involves so much more. Don’t be shy! Make sure your notes and plan fiduciary committee minutes explicitly say so.
Cover the Plan—and the Fiduciaries
Remember, only companies named on the Department of Treasury’s listing of approved sureties are able to provide ERISA fidelity bonds. Colonial Surety Company is the easy and efficient choice. Colonial is a direct to consumer, digital insurance provider, serving all 50 states and U.S. Territories. Colonial’s I-Bonds® are available for instant quote, purchase, print or e-file on your desktop or mobile device.
Colonial’s affordable ERISA bond packages include extended coverage to ensure your ERISA bond remains US Department of Labor compliant. When you choose your package, don’t forget to include Fiduciary Liability insurance to protect yourself from covered acts as the plan sponsor. Complete your coverage by adding on Cyber Liability insurance too. Save time, money and stress: Choose a complete ERISA package today.