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 is where fiduciary liability insurance fits in.
Who is 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
- Has discretionary authority or responsibility for the plan’s administration
Although it is possible to diminish exposure by delegating plan decisions to third parties, it is generally impossible to eliminate liability risk entirely.
What is it not?
So what is fiduciary liability insurance? Let us first look at what it is not.
First, it is not an ERISA fidelity bond. These bonds protect the plan from dishonesty on a fiduciary’s part, but do not protect fiduciaries from claims by others.
It also is not employee benefit liability (EBL) insurance. While both policies cover administrative errors and omissions, EBL coverage does not cover clear ERISA violations.
Finally, it is not a directors and officers (D&O) policy. Typically, D&O policies do not cover incidents that happen when a person is acting in a fiduciary capacity.
What is covered?
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 & disclosures to plan participants
- Incorrect investment advice
- Imprudent choice of outside service provider
- 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.