“Business owners and managers need to understand the fiduciary liability exposures they face, especially in an environment where they are likely to reduce staff or employee benefits,” according to Christine Dart, vice president and manager for worldwide fiduciary liability at The Chubb Group of Insurance Companies. Chubb, with law firm Morgan, Lewis & Bockius LLP, has released a special report on the risk of fiduciary liability lawsuits.
“Employees who still have jobs may not be inclined to ‘rock the boat,’ but those who find themselves overboard are more likely to take legal action against employers, especially if their 401(k) plans sustained losses before they were terminated. Fortunately, employers can take steps to reduce the threat of fiduciary liability lawsuits,” Dart noted.
The online report, Who May Sue You and Why: How to Reduce Your ERISA Risks and the Role of Fiduciary Liability Insurance, includes measures employers can take to help reduce the risk of a fiduciary lawsuit, including:
• Delegate fiduciary functions to committees with members who have the expertise and time to perform their duties properly.
• Establish programs to train fiduciaries on their responsibilities.
• Ensure that the plan's fiduciary structure and documents do not conflict with plan practices.
• Review fees and expenses at least annually to make sure that the plan is not charged for costs that should be allocated to the plan sponsor.
• Review agreements with outside fiduciaries to ensure that the acceptance of fiduciary status is documented and that the parties’ agreements include a clear statement of duties.
• Document accurately all meeting conversations and decisions and recommendations made by outside service providers.
• Consider establishing an investment policy statement; if one is already established, review it at least annually.
The Best Defense
“The U.S. Supreme Court’s ruling in LaRue v. DeWolff and regulatory changes have helped empower individual plan participants to bring actions for losses to their own accounts, paving the way for other claims against the fiduciaries,” said Charles Jackson, a labor and employment partner and co-chair of the ERISA litigation practice at Morgan Lewis.
“While the goal is to address fiduciary issues before they go to litigation, that may not always be possible,” added Dart. “Companies that follow guidelines such as those suggested in the report may be able to better defend such claims.”
Precautionary Steps to Avoid 401(k) Mismanagement Lawsuits, SHRM Online Benefits Discipline, March 2008
Developing a 401(k) Investment Policy Statement, SHRM Online Benefits Discipline, January 2008
Weather the Storm of 401(k) Lawsuits, HR Magazine, September 2007
SHRM Online Benefits Discipline