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Article | FINEX Observer

Fiduciary liability: 2021 in review and a look ahead to 2022

By Lawrence Fine and John M. Orr | January 4, 2022

We review the fiduciary developments of 2021 and provide our look ahead for 2022.
Financial, Executive and Professional Risks (FINEX)

In 2021, fiduciary liability insurers continued to respond to the substantial increase in class action frequency in 2020 by raising rates and drastically increasing self-insured retentions. Although the increased exposure was almost entirely related to excessive fee class action litigation, many carriers imposed 7- and 8- figure retentions across the board for all types of class and mass actions. At the same time, insurers went from sometimes not even requiring applications to insisting on long, complicated applications, usually with separate supplemental excessive fee questionnaires. Notwithstanding the new heightened scrutiny, carriers have generally maintained broad coverage terms and some have even been receptive to endorsing on enhancements.

In 2021, Willis Towers Watson coordinated across disciplines to address fiduciary developments. Willis Towers Watson brokers, Thought Leaders and benefit and investment advisory experts were in frequent communication and published several articles on diverse topics of interest.

As we look towards 2022, there is reason to hope for rate and retention stabilization if excessive fee class action filing volume remains depressed from 2020 peaks. Furthermore, guidance expected from the US Supreme Court may provide increased comfort among insurers that they can make informed decisions on how to underwrite to excessive fee risks.

2021: The year in review

2021 was the year that fiduciary insurance rates and retentions soared: After decades of modest premiums, fiduciary rates started to rise up in 2019 and accelerated in 2020. However, 2021 was the year that 7 figure and even 8 figure class action retentions became common. This was the cumulative lagging result of a reported more than $1 billion having been paid on excessive fee class action settlements, and an increase in claim volume in 2020 to more than 90 lawsuits. Although the pace of lawsuits has slowed in 2021 with less than 70 total expected to be filed by the end of 2021, and many recent settlements have been considerably below $5 million, this trend has not been widely publicized and has not yet resulted in a halt to rising rates and retentions (See our D&O Diary guest post, Excessive Fees, Excess Fiduciary Litigation: A Balanced Look).

Excessive fee class actions were by far the largest drivers of the market: Underwriters were initially focused solely on defined contribution plans with assets in excess of $1 billion, but scrutiny has widened considerably as plans with less than $100 million in assets have been sued (although suits against small plans have not resulted in substantial recoveries).

Challenged classes include financial institutions with proprietary funds in their plans, whether currently or in the past, especially if they have not yet been the subject of a prohibited transaction claim.

In the nonprofit space, large universities and hospitals have seen substantial litigation and are experiencing some of the most substantial premium and retention increases and may struggle to find insurers willing to insure them. In addition to 7- and 8-figure class action retentions, many carriers have raised retentions on individual claims from near zero to 5- and 6-figures.

Underwriters have been focused on issues such as excessive revenue sharing, uncapped asset-based vendor compensation, expensive retail share class investments, expensive actively managed funds, lack of regular benchmarking and RFP processes. However, although it may seem counterintuitive, some carriers remain nervous about potential insureds who have recently improved their processes rationalizing that they might be attractive targets for plaintiff firms who would make allegations about the prior period. In sum, any organization may be treated as risky by some carriers, and it can be challenging to get credit for best practices.

Clarification of pleading standards may be on the way: The US Supreme Court heard oral arguments on December 6, 2021 over whether to affirm or reverse the 7th Circuits dismissal of the excessive fee case against Northwestern University; at least 7 cases have been “paused” until the Court renders a decision.

Willis Towers Watson has published articles relating to excessive fee litigation, including Excessive fee litigation: Could there be an end in sight?, and been quoted on the subject of excessive fees litigation and its effect on the market (see, Spike in 401(k) Lawsuits Scrambles Fiduciary Insurance Market).

Our market perspectives concerning excessive fee litigation and other issues were reflected in our spring Insurance Marketplace Realities Spring 2021 – Fiduciary liability, and in our annual autumn release, Insurance Marketplace Realities 2022 – Fiduciary liability.

The U.S. Department of Labor focused on cyber security and launched several plan cyber audits: In April 2021, the Department of Labor (DOL) issued guidance providing tips and best practices to help retirement plan sponsors and fiduciaries better manage cybersecurity risks. Not long after, the DOL initiated many audits regarding retirement plan cybersecurity practices (see DOL begins cybersecurity audit initiative). It is not yet clear what the fallout from a negative audit will be, but if necessary insureds may find relevant coverage in their fiduciary and/or cyber policies.

The evolution in regulatory attitude towards environmental, social and governance (ESG) investing continued: On October 14, 2021 the Department of Labor (DOL) published for comment a new rule which modifies the previous administration’s 2020 rule that sought to discourage retirement plans from investing in ESG-related investment options by forcing fiduciaries to justify such investments. The change is “intended to counteract negative perception of the use of climate change and other ESG factors in investment decisions caused by the 2020 Rules, and to clarify that a fiduciary’s duty of prudence may often require an evaluation of the effect of climate change and/or government policy changes to address climate change on investments’ risks and returns.” Pursuant to the new proposed rule, plan fiduciaries would be allowed to consider collateral benefits of ESG investing on a tie-breaking “all things being equal” basis and may also consider that ESG risks can directly affect financial interests as well. The proposed rule would apply the same fiduciary standards to the selection and monitoring of a Qualified Default Investment Alternative (QDIA) as applied to other designated investment alternatives, including permitting consideration of ESG factors notwithstanding that such decisions could be politically controversial. (See Proposed updates to rules on ESG factors and voting proxies, and Clearing the air: Changes in ESG-related D&O risk in a new U.S. presidential administration, republished as a D&O Diary Guest Post).

Other types of class action suits were filed, besides excessive fee claims: There were class action suits involving alleged COBRA notice deficiencies and suits alleging reduced benefits due to the use of outdated mortality table assumptions, as well as suits which challenged specific investment options without mention of excessive fees. And individual benefit denials continued to be challenged in courts around the country as they have always been.

Despite carrier concerns, employer stock class actions against public companies did not make a resurgence, while private companies continued to be targeted: Although the U.S. Supreme Court’s 2014 decision in Fifth Third Bank Corp. v. Dudenhoeffer (USSC, 12-751, June 2014)1 was initially seen as a mixed bag for plaintiffs, the pleading standards it established have proven difficult to meet. As a result, very few employer stock drop class actions have been filed in recent years, and those few continue to be dismissed. Nonetheless, carriers remain concerned about employer stock in plans. They will sometimes exclude employer stock ownership plans or include elevated retentions. Meanwhile, some class actions against private companies with employer stock plans arising from valuation issues were filed and not dismissed.

The U.S. Supreme Court’s decision in Thole v. U.S. Bank N.A. (USSC, 17-1712, June 2020)2 limits some suits: The Court’s decision finding a lack of standing in relation to a defined benefit pension plan with adequate funding that hasn’t missed making benefit payments made it harder for plaintiffs to bring successful suits in relation to defined benefit plans. Furthermore, some defendant corporations successfully convinced courts to extend the holding to include defined contribution plans when the named plaintiffs weren’t invested in the specific questioned investments.

COVID-19 relief legislation: In March 2021, the American Rescue Plan Act (the Act) provided pandemic-related financial support to families as well as temporary COBRA and Affordable Care Act subsidies. The Act also extended funding stabilization for single-employer pension plans, modifications to executive compensation rules, as well as financial assistance for certain multi-employer pension plans. We have been monitoring any impact the uncertainty created by the Act may have on fiduciary liability and the fiduciary liability insurance marketplace.

GB Pension risks increase: The U.S. is not the only country seeing increased concern from insurers about fiduciary exposures. Great Britain has seen a perceived escalation in fiduciary exposures at home (due to COVID-19 uncertainties and increased regulatory powers for the Pensions Regulator) and to the extent that insureds have U.S. exposure. This has resulted in shrinking capacity, tightening terms and rising rates. See our article, State of the GB Market for Pension Trustee Liability Insurance.

This is despite indications that the Willis Towers Watson U.S. and Global pension indices have seen positive movement recently. See, Pension Finance Watch – October 2021, and Global Pension Finance Watch: Third quarter 2021.

IRS changes: The IRS made changes in tax inflation adjustments and in qualified retirement benefit limits, as well as changes in 5500 forms, which could lead to some confusion and potential claims; a subject we addressed in 2022 inflation-adjusted limits affect range of employee benefit plans.

SECURE Act: The Setting Every Community Up for Retirement Enhancement Act (SECURE Act) amended provisions of federal law, including ERISA, to establish a new form of multiple employer plan (MEP) called a pooled employer plan (PEP), which allows employers to join and delegate both investment and plan administration fiduciary obligations to pooled plan providers (PPPs). PEPs and PPPs need to ensure that they have sufficient and appropriately tailored fiduciary liability insurance to address emerging exposures contemplated in PPP/PEP arrangements. The SECURE Act also created the lifetime income disclosure requirement which is scheduled to affect participant statements due for the second quarter of 2022 and mandates that a participant’s annual benefit statement must include an illustration of their account balance converted to a lifetime income equivalent. As a result, sponsors became more focused on Lifetime Income Solutions. (See Enhancing Participant Retirement Security).

Challenges for employers in remaining competitive in benefit offerings: In an increasing competitive employment marketplace, disrupted by the pandemic and work at home arrangements, employers/plan sponsors are getting more creative in their benefit offerings to employees. We discussed this in The Pandemic Is Changing Employee Perks and Adapting Your Employee Perks for a Hybrid Environment. Although we haven’t seen fiduciary specific litigation arising from these changes, remaining competitive and adapting to the changing work environment has many advantages, including potentially on the directors and officers and employment liability fronts.

Coordination across disciplines: In 2021 Willis Towers Watson brokers, thought leaders and benefit and investment advisory experts were in frequent communication in order to best leverage our diverse experience to the advantage of clients. Willis Towers Watson published many articles in the past year concerning benefit trends and how to keep up with them:

Willis Towers Watson also held a webinar focusing on fiduciary exposures and how the strategic outsourcing of fiduciary expertise and decision-making can offer partial protection from liability.

2022: Looking ahead

Pandemic uncertainty: the pandemic will continue to have modest impact on fiduciary liability exposures, mainly indirect to the extent that challenges and uncertainties in the economy lead to consolidation, layoffs and/or benefit reductions. Litigation concerning coverage for covid-related treatments under ERISA-regulated health and welfare plans could also arise.

ESG: In light of the most recent proposed rule concerning ESG investments in pension plans, we expect to see more ESG-friendly investing. Fiduciaries will need to be careful not to take the change in regulatory tone as carte blanche to direct most investments with an excessive emphasis on ESG issues without sufficient diligent investigation of the financial and non-financial bona fides of such investments.

Excessive fee litigation: while there are several indications that excessive fee litigation may be moving in a somewhat defendant-friendly direction, the situation is not going to get better overnight and many carriers will be slow to react to improvements. Excessive fee filing volume seems to have dropped from just under 100 class actions in 2020 to just over 40 for the first 9 months of 2021 (annualized to approximately 60 filings expected in 2021). Recent settlements have mostly been less than $5 million, many much less (including some small non-public settlements with individual plaintiffs).

On December 6, 2021 the US Supreme Court heard oral arguments in the Northwestern University excessive fee case (Divance v. Northwestern University (7th Cir., 18-2569, March 2020). It is highly likely that the Court will deliver some valuable guidance around pleading standards where previously there has been a total lack of clarity due to wide variations in lower court holdings. Based on the questioning and comments during the oral argument, it seems likely that the Supreme Court will reverse the dismissal of the cause of action involving expensive retail class investment options where the plaintiffs alleged that identical lower price options were available (an allegation which the defendants dispute as a factual matter). However, it also seems likely that the dismissal of the claim relating to excessive recordkeeping fees will be upheld (or possibly remanded for the plaintiffs to replead, because several Justices expressed an opinion that those allegations were inadequately pled). Whatever the Northwestern decision says, plaintiffs and defendants alike may choose to declare victory, and plaintiffs will certainly work to refine their pleadings as a result.

Meanwhile, we expect to see a continued trend of further delegation/outsourcing of investment decisions to well-qualified vendors, including Independent Chief Investment Officers, seeking to maximize results and gain some potential insulation from liability. As a further important by-product of such best practices, hopefully such entities will work with experienced brokers to get maximum credit in connection with their insurance purchases.

Underwriting: most carriers will continue to insist on minimum 7-figure class action retentions during 2022: carriers will continue to address their concerns primarily through mandating minimum retentions (but are unlikely to raise retentions again on insureds who have already experienced a retention increase previously). The fact that fiduciary premiums were low for decades has made it difficult for admitted insurers to raise their rates as much as they might like, leaving retentions as the most readily available lever to adjust. Nonetheless, premiums are likely to continue to rise, but at lower percentages.

Carriers will continue to insist on substantial applications and excessive fee questionnaires, however the information will continue to be used more to weed out difficult risks as opposed to recognizing good risks. Hopefully some carriers will return to focusing their concerns primarily on defined contribution plans with more than $500 million in assets, having figured out that suits against smaller plans have resulted in low 7-figure tabs or less (several cases have been resolved through non-public individual settlements). As some carriers attack the issues with a very broad brush and others are willing to roll up their sleeves and acknowledge positive risk profiles, it will continue to be more essential than ever for insureds to work with fiduciary experts who are experienced in finding the best terms and pricing fits for their clients.


1 Fifth Third Bank Corp. v. Dudenhoeffer (USSC, 12-751, June 2014)

2 Thole v. U.S. Bank N.A. (USSC, 17-1712, June 2020)


Willis Towers Watson hopes you found the general information provided in this publication informative and helpful. The information contained herein is not intended to constitute legal or other professional advice and should not be relied upon in lieu of consultation with your own legal advisors. In the event you would like more information regarding your insurance coverage, please do not hesitate to reach out to us. In North America, Willis Towers Watson offers insurance products through licensed entities, including Willis Towers Watson Northeast, Inc. (in the United States) and Willis Canada Inc. (in Canada).

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