Has any employer made a claim on a Fiduciary Warranty?

[Peter Gulia]

More than a few insurance companies provide as a part of the package of investments and services for a retirement plan a "Fiduciary Warranty" that a plan's investment alternatives (within the provider's platform) will meet some specified ERISA conditions, and the insurer will indemnify the plan against its losses that resulted because, and bear the attorneys' fees of defending against a claim that, the plan's investment alternatives did not meet the specified conditions.

The salespeople continue to tout these indemnities as a real value.

Here's my question for practitioners: has any employer tendered a claim under one of these Fiduciary Warranty promises?

If so, was it a good or bad experience for the employer? Did the insurer promptly start paying the employer's attorneys' fees? Did the insurer allow the employer to choose the law firm; or did the insurer try to push the employer to the insurer's preferred law firms?

Or is a "Fiduciary Warranty" all sizzle and no steak?

[MSN]

Peter,

At best, the "warranty" would make the insurance company a fiduciary for a very limited scope of responsibility, usually due diligence selection of underlying funds (exclusive of wraps). In each that I've read, the role of the plans investment manager under ERISA 3(38) was held by a party outside the insurance company, usually the sponsor.

I'd question whether it would be possible for a sponsor in this situation to make a claim under the fiduciary warranty without subjecting him/herself to the possibility of a fiduciary breach claim. I think this acts a a pretty significant barrier to making a claim.

I share your curiosity about the experience though and hope that someone on here can share a story. The other important thing to consider is the warranty is only as good as the guarantor...even if well intentioned, they may not be able to pay depending on circumstances years from now.

In my opinion, it's just a marketing gimmick. There are real 3(38) managers in the marketplace, but I'm confident they are generally averse to the insurance companies platforms.

Mark

[Bird]

No experiences to share but FWIW I think it's little more than a marketing gimmick too.

[mbozek]

You need to read the actual language of the warranty to see how limited it is. Generally the warranty provides an indemnity for legal fees and damages if an investment option offerred by the insurance company to a plan sponsor as part of a preselected list of investments available for an ERISA 401k plan is determined to be imprudent by a court and the plan fiducaries are liable. The plan is required to have an IPS and follow all of the ERISA procedures for selecting investments in order for the warranty to apply, e.g. periodic fiducciary review required under IPS. Also the plan must remove an investment option promptly if notified by the investment advisor of its unsuitability. Warranty does not apply if there is a law suit by participants because of steep decline in investment performance due to an economic event (2008 market meltdown) or operational failure of the plan such as not processing participant's request to change investment to less risky choice which results in investment loss. It is unlikely that the warranty would be available in event of a law suit over excessive fees.

[Peter Gulia]

Thanks for the help.

And it is interesting that the promoters of the "Fiduciary Warranty" are some of the same insurance companies that also are deffendants in the undisclosed revenue-sharing and hidden-fees complaints.

[Peter Gulia]

Anything new since 2010?

Has any insurer ever paid a claim on this?