Mitigate Your Excessive Fees Risk
Category : Business Insurance
If your business offers a 401(k) there’s a new risk of which you should be aware. Excessive fee lawsuits filed under the Employee Retirement Income Security Act of 1974, ERISA, claim business fiduciaries have engaged in imprudent retirement plan management. The rise in these lawsuits can make it difficult to get fairly priced fiduciary liability insurance, but there are steps you can take to reduce your risk and keep your insurance premiums fair.
Remove or Reduce Common Risk Factors
The excessive fee lawsuits generally fall under one of these categories:
- Paying excessive recordkeeping fees
- Investing in money market funds instead of stable value funds
- Failing to reduce fees where possible
- Offering too many expense fund share classes
- Ignoring fund performance, and
- Continuing to offer poorly performing funds.
You can’t change what has already happened, but by acknowledging past mistakes and immediately improving how your fiduciaries handle these six categories, you’ll mitigate your risk of a lawsuit.
It’s important to realize that you don’t have to be a huge company to fall victim to a lawsuit. Besides taking steps to account for the most common types of lawsuits it is imperative to document every decision made. Hold regular fiduciary meetings and keep notes in an accessible location. Keep copies of all due diligence and requests for proposal.
Don’t assume that your 401(k) offerings will run themselves. Actively manage accounts to do your best for your employees and you’ll be prepared for any potential lawsuit.