Defined contribution sponsors can't prevent ERISA fee lawsuits, but insurance experts say there are many ways to reduce the risk of lawsuits and, in doing so, improve their chances for more favorable rates for fiduciary liability insurance.
Euclid Specialty Managers LLC offers prospective clients a checklist of best practices to reduce their risk of ERISA fee lawsuits, said Daniel Aronowitz, the Vienna, Va.-based managing principal of the company, which only accepts 25% of sponsors' requests for fiduciary liability coverage. "We only cover plans that have good fiduciary best practices," he said.
His firm recommends clients and prospective clients study excessive fee cases to determine the most likely lawsuit targets — record-keeping fees, investment option fees and retention of poor-performing investments.
"We do not claim to have a magic bullet or formula," says the Euclid checklist. For plans with $100 million or more in assets, the highest risk of a lawsuit is caused by offering retail shares when institutional shares are available, providing actively managed target-date funds, and paying record-keeping fees based on a percentage of assets with uncapped revenue sharing, the checklist says.