fiduciary liability insurance

Protecting Employee Health and Retirement Plans

ERISA, the Employee Retirement Income Security Act, regulates retirement plans and practically all employer plans that provide employee benefits, including health, life, profit sharing, disability, and employee leave. While ERISA does not require employers to establish benefit plans for their employees, it does however set out minimum standards for these plans. This includes having a code of conduct for fiduciaries, the person in charge of managing and overseeing employee benefit plans and programs.

Although it isn’t required by ERISA or any federal statute, fiduciary liability insurance is aimed at protecting businesses’ and employers’ assets against claims related to the mismanagement of a company’s employee benefit plans by the fiduciary. If for example, a claim is made against the policyholder of this coverage, this insurance covers the legal expenses of defending against the claim as well as the financial losses the plan may have incurred due to errors, omissions or breach of fiduciary duty.

Why lawsuits are brought against a fiduciary

If a company-sponsored plan is not managed properly resulting in benefits being lost due to the fact that employees were not given adequate information or instruction, fiduciaries can be held personally liable. Under ERISA Section 409, both employers, or the plan sponsors, and any outside providers hired in a fiduciary capacity can wind up being potentially exposed to significant liabilities.

If ruled against, they would then have to make reparations for any losses that they’re found legally responsible for. The ramifications can be rather broad, landing anywhere from legal claims arising from poorly invested pensions to charges of failing to inform employees about their eligibility for coverage for such things as medical procedures or other pertinent welfare benefits.

When you purchase fiduciary liability insurance for your company and employees engaged in fiduciary roles, the policy does not extend to any outside advisers, consultants, or administrators of your benefits plans. These providers would, therefore, be responsible for securing their own coverage in the event of a covered loss. Also, any time that you hire outside advisors to take on your plans’ fiduciary functions, this doesn’t necessarily exclude you from any associated liabilities. As an owner you are still responsible for monitoring these fiduciaries’ activities, so speak to a qualified agent to ensure you have the proper coverage in place.