That’s Gross! Is Your Plan Service Provider Only Responsible for Mistakes Constituting Gross Negligence or Willful Misconduct?

Because plan sponsors rely on their vendors to operate their plans, they may mistakenly think that their recordkeeper, for example, is the legal plan administrator responsible for fixing plan mistakes. To understand why administrative responsibility has not been legally delegated to their recordkeepers, plan sponsors need to review their service agreements. Plan recordkeeping agreements often contain disclaimers that the recordkeeper is not performing services as a fiduciary, which means that they are not assuming the legal responsibilities of an ERISA plan administrator. Some recordkeeping agreements provide that the recordkeeper will indemnify the plan sponsor for errors caused by their gross negligence or intentional (willful) misconduct, but that is a high threshold. Plus, many service provider contracts contain a limitation of liability, which may be a multiple of payments due under the contract. Sponsors can consider passing fiduciary responsibility for day-to-day activities to professional fiduciaries, like professional administrators, to take over many of the legal responsibilities of plan administration. This article by Carol Buckmann of Cohen & Buckmann, P.C. provides more guidance.

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Practical Guidance Updates
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