HTLF Retirement Plan Services
In the Driver’s Seat

Results from a recent survey for fiduciary liability insurance helps to better understand how plan management impacts pricing.

In the Driver’s Seat

A survey of fiduciary liability insurance carriers offers insights on prioritizing and managing fiduciary duties.

In the spring of 2021, Aon Investments surveyed 12 top carriers for fiduciary liability insurance to better understand how plan management typically impacts pricing for fiduciary liability insurance. The ultimate goal was to identify the biggest sources of fiduciary risk within the control of fiduciaries for Employee Retirement Income Security Act of 1974 (ERISA) defined benefit and defined contribution plans. Survey findings were published in Aon’s July 2021 white paper, “What Drives Fiduciary Liability.” Below are a few key highlights from the survey.

Fees are very important
Fees ranked as top drivers of fiduciary liability insurance premiums. Specifically, 88% of respondents said that it was a “significant” driver of insurance premiums if the investment committee does periodic plan administration fee benchmarking reviews. For defined contribution plans, 75% of respondents said that it was a significant driver of insurance premiums if plans use mutual funds generating revenue sharing or subtransfer agency (sub-TA) type revenues (i.e., revenue sharing), and 63% said mutual funds using retail share classes would be a significant driver of premiums. As such, monitoring and managing fees, along with documentation, should be a very high priority for plan sponsors.

Investment committee minutes are important (but it matters less who takes them)
All respondents said that formally taking minutes would have an impact on premiums. About one-third of respondents said that the impact would be significant, and the remainder said that it would be small. However, when asked about the impact of engaging an outside advisor or legal counsel to take minutes, half the respondents said that would have no impact, and most of the remainder described the impact as small.

Investment advisors are viewed as moderate influencers of premiums
When asked about the impact of having an investment advisor, respondents were almost evenly split among the impact being significant, small, or nonexistent. The advisor’s firm had little or no impact. Whether the plan sponsor uses an ERISA 3(38) outsourced investment advisor was viewed as having a small impact by 50% of respondents, no impact by 38%, and a significant impact by 12%. Free comments in this area of the survey included “experienced advisor is expected,” “the level of investment expertise deployed in investment decisions is a factor in our underwriting and greater expertise would be a positive factor among the multiple factors we consider” and “we are interested in evaluating the overall favorable impact that a 3(38) may have in this space.”

Employer stock in defined contribution plans remains a top concern for insurers
Eighty-eight percent of respondents viewed employer stock as a significant driver of premiums when company stock is held in the plan with no cap on investment limits. That figure drops to 50% when there is a limit on the size of such investments.

Environmental, social and governance (ESG) options in defined contribution plans play a minor role
Sixty-two percent of respondents said that ESG options have no impact on pricing and the remainder described the impact as small.

The white paper can be viewed at: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3992899.

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Heartland Retirement Plan Services are offered through Dubuque Bank and Trust Company. The information provided herein is general in nature and is not intended to be nor should be construed as specific investment, legal or tax advice. The factual information has been obtained from sources believed to be reliable, but is not guaranteed as to accuracy or completeness. Heartland Retirement Plan Services makes no warranties with regard to the information or results obtained by its use and disclaims any liability arising out of your use of, or reliance on, it. Products offered through Heartland Retirement Plan Services are not FDIC insured, are not bank guaranteed and may lose value, unless otherwise noted.