ERISA breach of fiduciary duty litigation against employers and executives remains high. These suits continue to allege, among other things, that employers and executives breached their fiduciary duties to plans and participants by allowing service providers to charge excessive fees and that plan investment lineups contain imprudent investment options, including high-fee “retail” share class mutual funds and annuities.
As one example, the Supreme Court’s highly anticipated ruling in Hughes v. Northwestern University, issued earlier this year, found that ERISA imposed a fiduciary duty to monitor all plan investments and to remove any individual investment that is imprudent in terms of performance or cost. The case made it clear that retirement plan fiduciaries cannot satisfy their duties under ERISA by simply including a large number of investment options and assuming the large number of investment options insulates the fiduciaries from their duties to both monitor all investments and remove any investment options that are no longer prudent. Moreover, plan fiduciaries must remember that the duty to select prudent investment options is independent of the diversification requirement.
Due to the continuous stream of ERISA fiduciary litigation, some fiduciary liability insurers have reportedly revamped their processes for evaluating applications for fiduciary liability coverage. These changes may impact an employer’s ability to obtain adequate fiduciary liability coverage, thereby increasing the exposure to plan sponsors and their executives.