Among the most contested areas of employee benefits litigation is an employer’s fiduciary duty to its plan participants and beneficiaries. The cost of defending yourself can be steep — regardless of fault. That’s where fiduciary liability insurance fits in.
Who’s a fiduciary?
ERISA defines a plan fiduciary as an individual who:
- Has discretionary authority or control with respect to plan management or disposition of plan assets,
- Renders investment advice for a fee, or
- Has discretionary authority or responsibility for the plan’s administration.
Although it’s possible to diminish exposure by delegating plan decisions to third parties, it’s generally impossible to eliminate liability risk entirely.
What is it not?
So what is fiduciary liability insurance? Let’s first look at what it isn’t.
First, it isn’t an ERISA fidelity bond. These bonds protect the plan from dishonesty on a fiduciary’s part, but don’t protect fiduciaries from claims by others.
It also isn’t employee benefit liability (EBL) insurance. While both policies cover administrative errors and omissions, EBL coverage doesn’t cover clear ERISA violations.
Finally, it isn’t a directors and officers (D&O) policy. Typically, D&O policies don’t cover incidents that happen when a person is acting in a fiduciary capacity.
Fiduciary insurance can cover both the fiduciary and the company sponsoring the plan. Policy provisions may include:
- Faulty advice from counsel,
- Improper plan document amendments and disclosures to plan participants,
- Incorrect investment advice,
- Imprudent choice of outside service provider, and
- Negligent errors and omissions.
Finding the right policy
When shopping for fiduciary liability coverage, consider the carrier’s experience, financial strength and reputation for paying claims. But, before you get started, please give us a call. We can help you compare costs and fit the purchase into your budget.