Plan sponsors should maintain an excellent fiduciary since they are in charge of investment decisions affecting retirement plans. In recent years class-action lawsuits involving the Employee Retirement Security Act have increased. The law was established by the federal government to protect the individual rights of members in the private sector. According to Hauser Insurance, the lawsuits alleged breach of fiduciary duty as plan sponsors charged an excess fee. The lawsuits are not cheap, and cases last for years. Plan sponsors are not immune to lawsuits even if they have transparency and integrity in their management.
Delegate certain fiduciary responsibility
ERISA standards allow plan sponsors to delegate the specific fiduciary obligation to a third party. The third party maintains complete authority over the plan’s management in case of anything they assume liability. Delegating doesn’t evade the plan sponsors from the ERISA strict standards that they have to adhere to. This ensures plan sponsors conduct a thorough review of each administrative candidate.
Update internal documentation and training
A plan sponsor should demonstrate their commitment to compliance. Documentation comes in handy in case of litigation as the court will thoroughly evaluate the sponsor’s efforts. Upon completion of fiduciary obligations, sponsors should document their policies and guidelines used in making investment decisions. Hauser Insurance identifies the need for plan sponsors to be transparent about their activities.
Purchase a fiduciary liability insurance
For plan sponsors to protect themselves from investment mismanagement allegations and legal fiduciary matters, they should opt for a fiduciary liability cover. The insurance policy protects plan sponsors from lawsuit-related expenses. Some of the covered allegations include substandard investment decisions, improper retirement funds, negligent benefit plan administration.
Class-action waiver and arbitration agreement
A class-action waiver waves participants’ rights to join in a class-action lawsuit. The waiver comes on the following amendment cycle. For a strong defense in a case, plan sponsors should state a time limit to a claim. Hauser Insurance says that a time limit will shorten the time between an alleged event and filling time.