Increased Attention on Fiduciary Liability of Retirement Plan Sponsors
Director of Retirement Plan Services, M3 Financial
When it comes to business insurance risk, there is a never-ending list of things to consider – from the safety of your facility and your employees’ wellbeing to contractual risk – but when was the last time you thought about your risk as a retirement plan sponsor? Increased litigation in this space has raised some flags, and made it clear that fiduciary liability risk may be mitigated by having a prudent, well-documented plan process in place, using competent ERISA experts, and of course, having insurance in place with an experienced insurance broker and carrier.
What is fiduciary liability risk?
Fiduciary risk should be considered a part of your property and casualty risk analysis. This can be both a personal risk for any individuals involved in decision making and a business risk.
Who is a fiduciary?
ERISA states a fiduciary is anyone that exercises discretionary control or authority over plan management, the disposition of plan assets, or has discretionary authority or responsibility in plan administration. In other words, if you offer a retirement plan for your business or serve as a member of a leadership team that makes decisions on behalf of your retirement plan for employees, YOU are a Fiduciary!
Why do I need to know this now?
Wisconsin has seen 13 lawsuits related to fiduciary liability in the past 18 months. A recent national study by Chubb showed that fiduciary excess fee claim filings increased 4 times in 2020. These filings are no longer only targeting “mega” plans, they are increasingly going after smaller employers. The acceleration of claim filings is worrisome, and large organizations are not the only targets. Retirement plan sponsors of every size should heed this trend, and take the opportunity to review and document their practices in the event of litigation against the plan.
I hired a fiduciary, am I still at risk?
Yes! Many organizations believe because they have hired an outside fiduciary to manage their retirement plans, they have fulfilled their obligation in protecting themselves from this risk. In actuality, the organization itself, the retirement plan sponsor, still carries the fiduciary risk. The Department of Labor clearly states it is the duty of the plan sponsor (primary fiduciary) to provide oversight of any hired fiduciary and service providers.
How can I protect myself and my organization against fiduciary liability risk?
As reference above, hiring a “fiduciary” is not enough. Purchasing fiduciary liability insurance is a hedge, but not a comprehensive long term strategy. Plan sponsors have a growing burden of retirement plan governance documents to codify their fiduciary compliance. This includes documentation of items such as committee charter structure, decision making authority, voting procedures, meeting minutes, decision making rationale, conflict of interest documentation and routine, and structured vendor analysis. Without documentation, your team has no defense for their decisions.
M3’s approach to retirement plan management and fiduciary risk analysis is executed through partnership with our M3 Financial team. Our retirement plan consultants are available to provide critical fiduciary management risk analysis on the items referenced throughout this article to ensure your processes, documentation, and vendor relationships are appropriate for comprehensive personal and business risk management.
Key Takeaways
An increasing number of lawsuits are being filed against retirement plan sponsors of every size. This type of litigation, if leveraged against your organization, can result in your business using its time and capital for defense – even if you hired a fiduciary to manage your plan.
Working with an expert to audit your current processes can help address what needs to be improved upon in order to make your business less at risk for these types of claims. Contact your M3 account executive to discuss how your organization can help reduce the chances of a lawsuit or increase the chances of successfully defending against lawsuit.
