Scary Facts About Your Company's 401k Plan

What could be scarier than another large loss to your 401k investments?  How about personal liability for all of your participant's assets?  Read on.

• Does your company sponsor a retirement or health plan for the employees?
• Are you involved with the management of that plan in any way?
• Have you hired a service provider to "handle the plan"?

If the answer to any of these questions is "yes”, you, my friend, are likely considered a “Fiduciary” and can be held personally liable for what happens to the plan (under ERISA law).

Scary stuff considering there are over 600,000 defined benefit plans in the United States. Many fiduciaries think that they have outsourced their liability to the TPA. I encourage you to read the TPA agreement. I think you will find that certain fiduciary duties cannot be delegated.

The duties of a fiduciary according to the federal Employee Retirement Income Security Act of 1974 (ERISA) include:

• Duty to be loyal to and act in the best interest of the individuals covered by the plan
• Duty to prudently select and monitor the outside firms hired to manage the plans
• Duty to diversify the investment selections
• Duty to follow plan documents

Do you think your D&O policy covers fiduciary liability?  Check with your agent as standard D&O policies exclude claims for ERISA violations.
Do you think your Employee Benefits Liability (EBL) covers fiduciary liability?  EBL coverage is usually limited to administrative errors and omissions.
Do you think your ERISA bond covers fiduciary liability?  ERISA bonds pay for any loss from theft of plan assets.

As a fiduciary, you cannot wholly transfer your liability to another party, such as a third party plan administrator, so you need to protect your personal assets as well as those of your company. A fiduciary liability policy can do just that.

As if these facts aren't frightening enough, be aware that the Department of Labor and the IRS are showing signs of greater interest in ensuring 401(k) plan compliance. All it takes for an investigation is a call to one of these governmental bodies from one of your employees. Even if you "win", the average reported defense cost for these types of claims is approximately $365,000!

In many cases, securing a fiduciary liability premium indication doesn't even require an application! Just contact your Trusted Choice Advisor today and ask for a quick indication.

In the meantime, find your plan document and see all the duties you have assumed as a fiduciary.  Knowing is half the battle!