Connections for Success



You Better Watch Out, You Better Not Cry, You Better Not Pout, I’m Telling You Why…

Your excessive fees suit is coming to you.  The 401(k) and 403(b) lawsuit world is hotter than the U.S. economy and equity markets.  The growth in lawsuits is enormous and climbing every day with the announcement of another suit and subsequent settlement being reported in the news.  There were (and still are) the stock-drop suits related to company stock funds.  Then came the excessive fees and inferior investment fund performance suits.  Those were quickly followed by the retail fund offerings and proprietary fund suits.  It has evolved into quite an avenue for lawyers to exploit in asserting violations of the Employee Retirement Income Security Act (ERISA) regulations.

With such growth in suits, plan sponsors need to heed these suits and take a look at their retirement plan offerings and assess their potential fiduciary liability.  According to BenefitsPRO, 401(k) and 403(b) settlements in the past few years have ranged from a few million to well over $70 million.  In 2019, the largest settlement to date was $55 million.  So, plan sponsors be aware that:

Lawyers are making a list
Checking it twice
Gonna find out who’s prudent or not
Your excessive fees suit is coming to you…

Fiduciary liability

ERISA imposes personal liability on fiduciaries who are determined to have breached their fiduciary duties.  This requires them to make the plan whole for any losses incurred by such breach, or to restore any profits the fiduciary gained using plan assets.

Fiduciary liability can arise from a number of reasons related to a fiduciary’s activities. These activities include the selection or retention of imprudent investments, participating in an act of self-dealing, engaging in transactions that present a conflict of interest or failing to pay a participant the benefit amount due under the plan.  Most of the lawsuits today have asserted activities involving imprudent investments, acts of self-dealing and conflicts of interest.

A fiduciary may also be liable for the acts of any agent it hires and must take care and prudence when selecting any plan vendor.  For example, fiduciaries could be challenged in their choice of an investment manager that is selected to manage plan assets, or an insurance company in the settlement of plan liabilities.

So who is a fiduciary?

A fiduciary is a person with the authority to make decisions regarding the plan’s assets or important administrative matters.  Controlling the assets of the plan or using discretion in administering and managing the plan makes you a plan fiduciary.  Fiduciary status is based on the functions performed for the plan, not a title.

ERISA requires fiduciaries to make decisions based solely in the interest of the participants.  In addition, fiduciaries are responsible for carrying out duties with the care, skill and diligence of a prudent person.  Related to the spew of excessive fees lawsuits, another of their responsibilities under ERISA is defraying reasonable expenses of the plan, such as investment management fees.

Related Read: “Let’s Play Ball! It’s Time to Step Up to the Plate to Review Fiduciary Status and Fiduciary Duties

Financially protecting your fiduciaries

With the spate of lawsuits today, who would want to risk being personally liable as a fiduciary?  Plan sponsors need to ask how to best protect their fiduciaries from being personally accountable in the current lawsuit environment.  As you know, the lawsuit tune goes on…

With excessive fees and retail shares
Inferior performing investments
Your excessive fees suit is coming to you
Imprudent investment selections
And prohibited transactions, too
Your excessive fees suit is coming to you.

Then lawyers in lawsuit land will have a jubilee
They’re gonna build a big lawsuit
All around the fiduciary duties
So! You better watch out, you better not cry
Better not pout, I’m telling you why
Your excessive fees suit is coming to you…

To help alleviate these fears of being a fiduciary, an often overlooked and important aspect of a company’s risk management plan is fiduciary liability insurance.  The purchase of a fiduciary liability insurance policy is optional under ERISA.  Whereas ERISA requires the purchase of fidelity bonding or theft insurance, fiduciary liability insurance is recommended by the Department of Labor. 

Fiduciary liability insurance protects benefit plans and plan fiduciaries from losses caused by the unintended acts or omissions of fiduciaries.  Further, buying fiduciary insurance protects employers and their plan fiduciaries from claims in the alleged mismanagement of plan assets or complying with ERISA’s fiduciary responsibilities when controlling or managing plan assets and paying plan benefits. 

Fiduciary liability policies generally pay for the cost of defending a plan, as well as the plan sponsor and fiduciary when there are allegations of a fiduciary breach.  Additionally, these policies will indemnify the fiduciary for monetary liabilities that result from a legal settlement or adverse judgement.

Be prudent

As a first step, evaluate whether your corporation’s director and officer (D&O) policy includes fiduciary liability coverage.  Fiduciary liability insurance is not typically part of your D&O liability insurance policy and some are only by endorsement.  If you have an existing fiduciary policy, review the adequacy of that protection as fiduciary liability exposure may have grown since you last purchased or assessed policy coverage.  And, if you do not have fiduciary liability insurance, consider purchasing a policy.

Ask your benefit advisor or insurance provider to review your fiduciary liability risk.  Be prudent and start learning more about adequately insuring your fiduciary liabilities by consulting with your advisor.  As we approach the holidays, remember the tune (also the lawsuits and settlements) plays on and on… 

They see you when your plan’s ageless
They know when your plan’s stirring
They know if you’ve been prudent or not
So be prudent for prudence sake.
I’m telling you why
Your excessive fees suit is coming to you! 

For more information, contact your ORBA advisor at 312.670.7444. Visit to learn more about our Employee Benefit Plans Services.

Your email address will not be published. Required fields are marked *

Forward Thinking