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Avoiding Fiduciary Liability

By Kevin Testo, on October 20th, 2023

During the past several years, a number of lawsuits have named some of the most respected employers in the United States, amounting to over $100 million of damaged claimed. Even the most respected employers are not safe from legal penalties associated with failed governance over corporate retirement benefits. Plan administrators have become easy targets for successful lawsuits, especially those without fiduciary liability insurance.

With about $4.5 trillion in U.S. retirement accounts, it’s more important than ever for fiduciaries to protect themselves and their employees from financial losses associated with the mismanagement of retirement plans. To avoid potential liability, and to operate in a way that makes for a better outcome if litigation is imminent, plan administrators must always uphold their fiduciary duties and remember it is the fiduciaries’ primary objective to run their plan solely in the interest of participants.

Plan administrators can learn from the mistakes of those who have fallen short on their duties and follow these best practices:

  • Establish a governance structure with clearly designated responsibilities. Create a charter defining powers, duties, and methods of operation. Be sure the governance body is free from any conflicts of interest.
  • Understand the plan’s investments. Provide a diversified set of options without creating “choice overload” for participants (10-20 investment choices is recommended). Monitor under-performing funds on a periodic basis (i.e., quarterly) and seek alternative replacements when the time is necessary.
  • Ensure the plan only pays reasonable fees. Understand the amount of fees actually paid, how fees are generated, who pays the fees, and continually monitor the fairness of the fees.

In conclusion, plan administrators should always remember to memorialize all fiduciary thought processes and key decisions made over their Plan. Retain minutes from meetings of committees and maintain an investment file to retain material from reviews of investments. Ultimately, if the process is not documented, it did not happen. Minutes are a plan administrator’s opportunity to demonstrate how they fulfilled their fiduciary duties and mitigate the risk of the employer’s liability.

If you need further guidance or have any questions on this topic, we are here to help. Please do not hesitate to reach out to discuss your specific situation.

This material has been prepared for general, informational purposes only and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. Should you require any such advice, please contact us directly. The information contained herein does not create, and your review or use of the information does not constitute, an accountant-client relationship.

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Written By

Kevin Testo Sept 22
Kevin Testo
Industry Leader, Human Services

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