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Audit & Assurance

What Retirement Plan Fiduciaries Can Do to Prevent Lawsuits

At a Glance

Main Takeaway

If you act as a retirement plan fiduciary, you must take steps to protect yourself from potential litigation. According to SHRM, more than 200 class-action lawsuits have been filed under the Employee Retirement and Income Security Act (ERISA) regulations since 2020, with 100 cases connected to alleged breaches of fiduciary duties.

Retirement plan fiduciaries should have a strategy for maintaining their duty of care for plan beneficiaries while minimizing the risk of involvement in an ERISA claim.

Next Step

Explore ways to prevent lawsuits as a retirement plan fiduciary, such as maintaining proper documentation, keeping up-to-date with current regulations, and hiring a professional auditing company to perform an employee benefit plan audit.

Retirement Plan Fiduciary Responsibilities

According to the IRS, retirement plan fiduciaries have basic responsibilities towards their plan beneficiaries. These include:

  • Acting in the interest of plan participants and beneficiaries
  • Ensuring plan expenses remain reasonable
  • Exercising a duty of care with diligence, prudence, and skill regarding investments
  • Diversifying plan investments
  • Following plan documents
  • Avoiding potential or apparent conflicts of interest

If you fail to uphold your duties as a fiduciary, you can face severe penalties. Plan members may file a complaint under ERISA with the Department of Labor. Complaints can result in a DOL audit for your company. Beneficiaries may also file lawsuits or participate in class-action litigation.

Ways to Prevent Lawsuits as a Retirement Plan Fiduciary

There are several ways to avoid ERISA lawsuits against your company’s retirement plan. Although these steps do not entirely mitigate the risk of litigation, they do reduce exposure, protecting your company and plan participants.

Document Decision-Making Processes

One of the most critical steps in protecting yourself is documenting your decision-making process as a fiduciary of the plan. Fiduciaries must act prudently on behalf of plan participants and keep documentation showing why they chose various plan elements.

Consider making and retaining detailed notes when researching plan fees, investment options, and service providers. These notes should document the providers considered and why a provider was selected.

Hire Qualified Service Providers

You can reduce your plan liability by hiring a service provider to manage certain fiduciary functions. Certain providers, including investment advisors and third-party administrators, will act as co-fiduciaries for certain plan functions for additional fees. Speak with the service provider often and monitor the company’s performance. If your plan requires an independent audit, engage an auditor that specializes in ERISA audits. A qualified auditor can provide feedback, insight, and best practices to ensure your plan is compliant. Finally, consider switching to a new provider when and if necessary.

Act in Your Participants’ Best Interests

As a fiduciary, you should always act in your participants’ best interests. This means acting prudently by evaluating plan fees and comparing them to national benchmarks.

The plan committee should monitor investments offered in the plan and ensure they are suitable offerings for participants. Document every decision you make and always choose the option that benefits your participants and their beneficiaries.

Follow Plan Documents

Review your plan documentation each year to ensure the document is compliant with current ERISA regulations. Ensuring that the company follows the provisions of the plan document in administering the plan can mitigate the risk of a lawsuit. Those charged with oversight and administration of the plan should read the plan document and consult it when authorizing plan transactions.

Train Your Plan Fiduciaries

Always train your plan fiduciaries before placing them in a position of responsibility. Acting as a retirement plan fiduciary requires a wide range of skills and knowledge.

Select appropriate candidates to fill the position and ensure they understand the standard of care and duties they must adhere to.

Obtain Fiduciary Liability Insurance

An additional measure you can take to protect yourself as a retirement plan fiduciary is to obtain fiduciary liability insurance. This type of policy covers employees who act in a fiduciary role; however, it will not cover third-party service providers or anyone acting as an outside advisor or a benefit plan administrator.

Implement DOL Initiatives

The DOL continues to roll out initiatives regarding employee benefits plans, including a focus on cybersecurity. To minimize your risk of legal issues, enact strong cybersecurity measures to protect participant accounts. Have protections in place to keep participant plan information safe and provide cybersecurity education to help them be aware of potential phishing or cyber-attacks.

Watch these five Do’s and Don’ts for retirement plan fiduciaries for a more in-depth review of DOL initiatives to follow.

Work with Windes, a professional audit and consulting company that offers employee benefit plan audits for businesses in Long Beach, Los Angeles, Orange County, and beyond.

Windes is the best choice for your benefit plan audit needs. With our audit expertise, plan sponsors have access to the commitment and professional excellence necessary to comply with complex regulations.

Contact Windes today at 844.494.6337 or aaalerts@windes.com to learn how your company can profit from a benefit plan audit.

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