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Your Employees' Retirement Plans: Handle With Care

the one minute takeaway
Claims of fiduciary liability are often the result of human administrative error. Are you doing everything you can to prevent them, including having the right policies in place and employing best preventative practices?
Fiduciary Insurance

Mismanagement of your employees’ retirement and health plans can expose you and your company to significant liabilities.
Consider the following common scenarios:

  • One of your employees recently got married, and the new spouse’s benefit enrollment papers were misplaced.
  • A new employee signs up for the 401(k) vested option, but the request still hadn’t been processed six months later.

Whether an honest mistake or not, mismanagement of benefits can lead to lawsuits - individual or class action - as well as government fines and penalties.

Fiduciary claims can come from regulatory bodies, like the Department of Labor (DOL) or more commonly, your employees and their family members.

Fiduciary claims will revolve around two common triggers:

  1. Human or administrative errors. Like the above examples, there’s great opportunity for human error in benefits processing. This is especially true during periods of explosive growth, when onboarding many employees simultaneously; when merging benefits during company acquisitions; taking employees off existing benefits and moving them to new offerings and more.
  2. Decisions directors and officers make pertaining to the health/welfare and retirement of employees, such as selecting inappropriate plan committee members or service providers for plans (or not adequately monitoring those members or service providers) or paying too much for investments or services.

Either one of these triggers can lead to a full-fledged lawsuit, or more commonly, a written demand for benefits and attorneys’ fees, with allegations of liability. This could be in the form of an email from the employee, or a more formal legal letter on behalf of the employee or government regulatory agency.

Having a fiduciary policy in place will cover legal and attorney fees required for your business’ defense and negotiation in a fiduciary matter. A fiduciary policy does not cover regulatory fines and penalties, nor do they cover back benefits due to the employee.

Instead, employers will want to make sure their directors and officers (D&O) and employment practices liability (EPL) policies dovetail with their fiduciary policy to ensure adequate coverage and minimize potential gaps.

In addition to being properly covered, there are ways to actively limit these suits before they happen. Here are a few best practices:

  • Read the Department of Labor’s guidance for retirement and health and welfare plans that describe your fiduciary obligations.
  • Select a third-party ERISA fiduciary advisor to mitigate the selection, performance and monitoring of the investment lineup.
  • Establish due diligence processes before you design or allocate assets for your 401(k) plan and document how you followed that process for decisions that you make.
  • Create an internal investment committee comprised of a financial advisor and HR professionals to prevent a single person from holding too much influence. You may want to include legal representatives as non-fiduciary, non-voting, observing members as well.
  • Know what your plans say and perform periodic reviews to make sure you (and your service providers) are following them.
  • Conduct periodic reviews of your fees and services to make sure they are reasonable and appropriate for your plans.
  • Make fiduciary liability part of your executive liability coverage to ensure your business is protected.

Contact your HUB advisor to make sure your fiduciary policy dovetails with your other executive liability policies and that you have appropriate limits for your defense should a potential claim surface.


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