One of the top risks identified by RCM&D in the 2019 Outlook for Education is the continued ERISA and fiduciary liability litigation against educational institutions. These cases brought by Jerry Schlichter since 2015 and 2016 are still having impacts on the fiduciary liability insurance market.
These lawsuits allege that retirement plan participants were left paying extensive, unnecessary administration, service and investment fees because these educational institutions did not effectively meet the fiduciary duties of their 403(b) plans. Additional claims include:
- excessive investment options
- lack of service provider monitoring
- failure to replace underperforming funds
- multiple recordkeeper issues
While these lawsuits have typically targeted large universities, the risk exists within any institution that offers a retirement plan. As a result, some insurance companies have changed their underwriting appetite for new fiduciary business or have capped the available limits they are willing to offer. Insurers are looking deeper into school’s procedures and oversight of their 403(b) plan providers, fees and performance. Others are increasing retentions on excessive fee claims and based on overall risk profile.
While the impacts of these lawsuits have been widespread throughout the recent years, some argue that tides may be beginning to shift, as several institutions including New York University (NYU) and Northwestern University have been successful in getting these charges dismissed. Some of these cases proved that plaintiffs had no standing to bring the cases forward in the first place. Meanwhile, other institutions like the University of Chicago have settled before the cases went to trial— proving this trend is not over. An article by 401k Specialist Magazine indicated that recent losses by plaintiffs will hopefully lead to reduced “targeting [of] fiduciaries who try to follow prudent processes, and focus on fiduciaries who truly appear to have failed to fulfill their fiduciary responsibilities, that will be a major step towards reining in the excesses of this area of litigation.”
RCM&D remains proactive in the underwriting process to ensure a successful renewal for all of our clients. Our team offers unique solutions for institutions of all types and sizes to mitigate the potential risks as a result of your fiduciary responsibilities, including the formation of state-level Multiple-Employer Plans (MEPs) as we will discuss in our next blog. Our consultants work with you to ensure that you are meeting your fiduciary duties, going far beyond simple due diligence. If you have any questions about your current plan or fiduciary responsibilities, please reach out to the RCM&D Education Practice team.