What if you sponsor a small to mid-size retirement plan, and get named in a copycat lawsuit alleging high plan fees, poor investment choices or failure to follow protocols? You’ll scramble to secure knowledgeable ERISA defense, and your regular business insurance policies will not cover the cost. ERISA standards for plan sponsors are very high, so even if you don’t believe you have erred, overlooked, granular details could really hurt in court, where you can be held personally liable.
Scrutinizing Plan Sponsors
Retirement plan sponsors have always had a lot to worry about, but lately there’s even more. As Dick Clarke, Colonial Surety’s Chief Insurance Officer, explains in 401(k) Specialist Magazine: “The Supreme Court decision in Cunningham v. Cornell has profoundly reshaped the ERISA litigation landscape by simplifying the plaintiffs’ path to court, now requiring only allegations of a prohibited transaction to move forward. This pivotal ruling is expected to significantly increase the volume and intensity of ERISA-related lawsuits.”
Past years have already created a highly litigious environment for ERISA fiduciaries, with legal precedence making copy cat cases viable against even plan sponsors from small and mid-size businesses. In addition to confusion with the staggered implementation protocols and deadlines related to SECURE 2.0, and obligations to mitigate cybersecurity threats, retirement plan sponsors are also confronting questions about ESG investing, cryptocurrency, and annuities, as they work to meet the needs of participants. With AI making it easier and faster to identify possible shortcomings vis a vis ERISA law, retirement plan sponsors have little room for even minute oversights, as Clarke further points out: “Entrepreneurial-minded attorneys are flocking to uncover breaches of fiduciaries’ ERISA duty, statutory prohibited transactions, or other statutory violations, hoping to access the trillions of dollars held in private retirement plans. Opportunistic attorneys even go fishing for ERISA violations by casting their litigation netting far and wide.”
Though allegations and investigations against plan sponsors are not automatic indications of errors or wrongdoing, mounting an ERISA defense is disruptive and costly: “For SMBs, a $200K compliance penalty or settlement can be devastating. For individual fiduciaries, it can be catastrophic, with legal defense costs averaging about $600 per hour.” Though required by the Department of Labor (DOL) for employee dishonesty, ERISA fidelity bonds do not cover retirement plan fiduciaries in the face of lawsuits or investigations. Summing up, it’s very unwise for retirement plan sponsors to forgo protection for themselves, and only fiduciary liability insurance covers the risks plan sponsors uniquely face. As risk management experts underscore: “Fiduciary liability insurance is an indispensable measure to ensure sponsors and their businesses are protected with defense costs and penalty limits. Without such protection, plan sponsors are on the hook for costs….”
Ready for some good news? You don’t have to go it alone as a retirement plan sponsor. Colonial Surety Company ensures that for a few dollars a day, plan sponsors have coverage in the event of claims of alleged or actual breaches of duty in connection with the employee retirement plan. Colonial’s fiduciary liability insurance provides defense costs and penalty limits up to $1,000,000. Our coverage specifically addresses the risks of retirement plan sponsors, and includes:
- Comprehensive protection – Coverage spans fiduciary errors, breaches in plan administration, and many regulatory compliance risks.
- Defense costs– Includes legal defense – even for government investigations or individual fiduciaries named in lawsuits.
- Cyber Liability insurance-Provides critical additional protection against regulatory actions related to data and privacy, as well as expert response services as recommended by the Department of labor.
Get complete, affordable protection against your personal risks as a retirement plan sponsor today. Quote and bind your coverage in minutes right here:
Fiduciary Liability Insurance for Retirement Plan Sponsors
Colonial Surety Company is 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.