A spokesperson for Hauser Insurance Group recently spoke about fiduciary liability. Companies that operate from a place of strong fiduciary responsibility maintain successful and trust-based relationships with clients for whom they manage an investment program. According to Hauser Insurance Group, fiduciary liability is a pertinent topic when managing employee retirement accounts.

ERISA Litigation Has Risen in the Past Few Years

The federal government established the Employee Retirement Income Security Act (ERISA) in 1974. The purpose of the law was to enforce federal standards of minimal service for retirement and health insurance plans in the private sector. The ERISA acts as a form of protection for people covered by these plans.

Last year, more than 100 companies filed federal ERISA lawsuits accusing plan sponsors of mismanaging 401(k) retirement accounts. The spokesperson for Hauser Insurance Group states that the biggest complaint in the lawsuits is that companies charge excessive fees to plan participants. Several universities, which typically offer 403(b) retirement savings accounts to employees, filed similar ERISA lawsuits.

Due to the time and expense involved with settling a lawsuit, several companies chose to agree to an out-of-court settlement. Approximately 15 companies have paid out more than $100 million dollars in damage each for the 2020 ERISA lawsuits.

Most companies that manage financial investments for others act with transparency and integrity. Unfortunately, this does not protect them from lawsuits. The best way for plan sponsors to protect themselves from these huge payouts is to implement new strategies to reduce fiduciary liability.

Be Clear about Specific Fiduciary Functions

ERISA allows financial plan sponsors to delegate certain obligations, including investment management and plan administration, to a third party. The company acting as managing fiduciary in this scenario retains complete authority over the investments, while the outsourced party is liable for management decisions.

Plan sponsors sometimes fail to recognize that they are still responsible for meeting ERISA standards even when hiring a third party to administer the plan and manage investments. What that means for plan sponsors is that they must exercise professional discretion when interviewing candidates to provide plan administration services. Liability experts Hauser Insurance Group specifically recommends that plan sponsors look for the following in third-party administrators:

• Proven investment experience
• Financial plan management expertise
• A managing fiduciary that maintains its own insurance coverage
• The fiduciary lists the plan sponsor as the insured

Consider Purchasing Fiduciary Liability Insurance

The Hauser Insurance Group representative states that purchasing fiduciary liability insurance will give plan sponsors the greatest peace of mind. This type of insurance policy offers protection from several common investment management allegations and fiduciary legal liability. Insureds also receive protection from lawsuits due to administrative errors. Typical examples include improper use of retirement funds, poor investment decisions, and errors or omissions.

Taking on another company’s financial investments is a huge responsibility that invites plenty of risks. Fortunately, implementing these strategies reduces risk while increasing profit.