Employers Now Jumping Through Hoops to Acquire D&O Insurance

February 28, 2022

Excessive fee lawsuits in recent years have pushed insurance carriers to be wary of issuing fiduciary liability insurance coverage to employers. As a result, employers may now have to jump through hoops to secure adequate Directors and Officers (D&O) liability insurance.

Organizations are now receiving questionnaires asking for details about their practices for evaluating excessive fees for their retirement plans – and the questions must be responded to as part of the application process for D&O coverage. Securing liability insurance for the board of directors and officers of your retirement plan is imperative and detailing your organization’s efforts to identify and address excessive fees is now a requirement for acquiring coverage.

Expect Plenty of Questions from the Insurer

For many organizations who do not have a process in place for evaluating excessive fees, or have not reviewed their plan in several years, the quest for obtaining fiduciary liability insurance may be extremely challenging as insurance carriers are more careful about providing coverage. Even for organizations who have a process in place, completing the questionnaires can be overwhelming. Examples of questions include:

• What is the process your plan committee goes through to evaluate the reasonableness of service provider fees, and in particular, your recordkeeper(s)?
• Describe the process your investment committee goes through in evaluating plan investment options, including the performance and expense of the investment options. How often does your committee meet?
• Do you benchmark your recordkeeping fees in any way? If yes, what do you do with that information?
• Do you review your investments to ensure that you have the most cost-effective share class (e.g., institutional versus retail; passive versus actively managed) as appropriate? If yes, describe.
• Provide a copy of the most recent 404(a)(5) participant fee disclosure that was sent to plan participants.

Conclusion

Completing an insurance provider’s questionnaire may be a hoop that most employers aren’t prepared to jump through, but the solution may be as simple as having a partner who has reviewed your plan’s processes and procedures for evaluating excessive fees. Handing off the list of questions allows the experts to complete the survey quickly and accurately.