Careful planning and preparation for detailed underwriting questions can help organizations navigate the fiduciary liability market. With stable market conditions and potential rate decreases, being well-prepared can lead to better terms and conditions from insurers, including enhanced coverage.  

Emerging Fiduciary Liability Risks

Emerging risks may impact fiduciary liability, but organizations that adapt can protect themselves and present a favorable risk profile to insurers.

• The SECURE 2.0 Act introduces several changes to 401(k) distribution rules, disclosures, and testing procedures. Key provisions include auto-enrollment for new employees and terminal illness payments. These changes aim to improve retirement savings and flexibility but also pose new compliance challenges. Incorrect implementation could result in penalties and increased regulatory scrutiny.
• The overturned Chevron Doctrine could have implications for the DOL’s Environmental, Social, and Governance (ESG) rule, which allows fiduciaries to consider ESG factors when making investment decisions. The rule only went into effect in January 2023 and was quickly challenged by multiple state attorneys general. The overturned doctrine, which previously allowed courts to defer to regulatory agencies' interpretations of ambiguous statutes, now creates more uncertainty and potential legal challenges for ESG investment decisions.
• The Mental Health Parity and Addiction Equity Act (MHPAEA) requires group health plans and insurers to provide mental health or substance use disorder benefits without imposing more restrictive limitations than those applied to medical or surgical benefits. This leads to increased fiduciary liability as it demands rigorous compliance and detailed comparative analyses of treatment limitations. Fiduciaries must certify that they have engaged in a prudent process for selecting and monitoring vendors to conduct these analyses, thereby increasing their liability if the process or the analyses are found to be inadequate.
• The Employee Retirement Income Security Act (ERISA) class-action lawsuits allege fiduciary duty violations regarding 401(k) forfeitures used to offset future employer contributions. These cases highlight risks for fiduciaries, challenging their prudence and loyalty. To mitigate these risks, fiduciaries should review and comply with plan terms and ERISA regulations.
• Non-compliance with COBRA election notice requirements can lead to significant lawsuits and penalties. Inadequate notices can be seen as a breach of fiduciary duty under ERISA, resulting in litigation and financial penalties for fiduciaries. Ensuring compliance with notice requirements is essential to mitigate these risks.
• Claims related to the fairness of pension risk transfers or buyouts can significantly increase fiduciary liability. If plan participants believe that the transfer or buyout was not in their best interest, they may file lawsuits alleging breaches of fiduciary duty under ERISA. This can result in costly legal battles and potential penalties if the plan sponsor failed to act prudently. Proper documentation and diligent selection of annuity providers are crucial to mitigate these risks
• State and local healthcare regulations, particularly regarding healthcare coverage for abortion, could complicate compliance efforts.

Fiduciaries should address their unique risks by implementing compliance programs, documenting their decision-making processes, and consulting fiduciary liability experts. This approach helps navigate the evolving landscape and protect organizations from potential liabilities.