By Trey Starke, CPCU, CIC
Do you have fiduciary responsibilities? Are your personal assets at risk? Are you subject to lawsuits, fines and penalties?
If you are an owner or officer who makes decisions about your company’s 401(k) plan or other qualified employee benefit plan(s), odds are, your personal assets are at risk! Under the ERISA act of 1974, fiduciaries can be held personally liable for losses to a benefit plan incurred as a result of their alleged errors, omissions, or breach of their fiduciary duties.
Employment Liability Insurance does not cover all situations of fiduciary responsibility, especially those regarding imprudent investment of funds, so it may be time to look into Fiduciary Liability Insurance if you have not already.
What does Fiduciary Liability Insurance Provide?
Fiduciary liability insurance provides plan sponsors and trustees from defense costs and penalties if they are sued for fiduciary decisions they make regarding an employee benefit plan, including:
• Negligent errors and omissions
• Improper disclosures to plan participants
• Remiss investment advice
• Imprudent or unwise selection of investment advisor
• Improper amendments to plan documents
Types of Coverage:
There are two types of coverage related to fiduciary liability insurance, and there are some definite distinctions between the two. First, fidelity bonds are required by law (ERISA bonding). This is a form of insurance for dishonesty situations. When dishonest administrators or trustees have financially harmed an employee benefit plan, these bonds may be used, but only for the benefit of the plan and the plan’s beneficiaries. This bonding insurance will not protect the trustees themselves from liability claims and is thus completely distinct from fiduciary liability insurance.
A second related coverage is employee benefit liability (EBL) insurance. EBL insurance policies cover many claims arising out of errors or omissions in the administration of a benefit plan, including the failure to enroll an employee in the plan as well as the administration of improper advice as to benefits.
EBL insurance does not cover all situations of fiduciary responsibility, especially those regarding imprudent investment of funds. Fiduciary liability insurance coverage may or may not encompass EBL insurance coverage—the insurer involved, the purchasing entity, and the specific type of fiduciary liability coverage being employed will ultimately determine what scope of coverage is available.
For more information on fiduciary liability insurance, contact a Starke Agency representative.