When it comes to ERISA fiduciary warranties, a Bloomberg/BNA report warns: buyer beware. Experts say that many of the warranties offered by providers, which are intended to protect plan sponsors from litigation liability, are nothing more than a marketing gimmick. Concerns include the limited nature of the warranty, which does not cover the most prevalent types of litigation; misunderstanding by plan sponsors of what is covered; and the fact that the warrantor may not be a fiduciary. According to a Unified Trust study, more than half of plan sponsors thought that their warranty would cover all types of litigation.
There are three basic types of warranties:
• Limited — usually covering investment diversification, which has not been the subject of most litigation
• Defined — covering the QDIA, for example
• Broad — which can include real insurance protection
Most experienced plan advisors know that the best fiduciary protection is a periodic, prudent process that is documented and benchmarked when it comes to fees. The process should affirmatively answer the two basic questions of fiduciary responsibility: Are the fees reasonable, and is the plan designed for the sole benefit of the participants? It’s a far better use of time and resources than the false sense of protection of most fiduciary warranties.
