Fiduciary Liability Insurance
Companies generally create employee benefit plans to help attract and retain quality employees. However, they may not be aware of the liability exposure created from the management of these plans. Or, that utilizing a third-party plan administrator (TPA) does not eliminate their exposure.
Even more concerning is that as a fiduciary (trustee) of a companies Retirement Plan, or Welfare Plan (including medical, dental, life and disability), ERISA holds them personally liable.
What can fiduciary insurance policies cover?
A fiduciary liability policy protects the personal assets of a plan Fiduciary due to allegations of breach of fiduciary duties.
- Breach of fiduciary duties - see examples
- Negligent errors and omissions
- Improper disclosures to plan participants
- Remiss investment advice
- Imprudent choice of outside service provider (OSP)
- Faulty advice of counsel
- Improper amendments to plan documents
Who is considered a Fiduciary under ERISA law?
A Fiduciary is any person who:
- Exercises any discretionary authority or discretionary control in managing the plan or who has any authority or control in managing or disposing of its assets;
- renders investment advice for a fee or compensation with respect to any monies or other property belonging to the plan; or
- has any discretionary authority or responsibility in administrating the plan.
The term is intentionally loosely defined to hold accountable all individuals who may be responsible for misuse of plan assets or a loss to plan participants.
Why Purchase Fiduciary liability?
To Avoid Loss of Plan Assets – Using plan assets to defend ERISA litigation is a very questionable use of plan assets, and potentially a breach of fiduciary duty. Another potential breach is for the plan to lose money that could have been paid by a fiduciary liability policy, had one been in place. ERISA explicitly allows for the purchase of fiduciary liability insurance.
What does it cost?
A short application is required to determine eligibility and actual costs. However, premiums are based on the size of the plan and average:
Size of Plan (Assets) Average Annual Premium < $5,000,000 $500 - $1,500 $5,000,000 - $10,000,000 $1,300 - $2,500 $10,000,000 - $20,000,000 $1,500 - $3,200 $20,000,000 - $30,000,000 $2,500 - $4,000 $30,000,000 - $50,000,000 $3,000 - $5,500
Typical Fiduciary Liability Insurance coverage highlights:
- Broad definition of insured including the company, its benefit plans and its fiduciaries
- Optional $100,000 sublimit for qualifying voluntary settlement fees
- Optional coverage for defense outside the limits of liability
- Coverage for 502(i) and 502(l) civil penalties
- Broad employee benefit plan language including plans outside the United States of America and any excess benefit plans
- Broad wrongful acts definition includes allegations of breach of fiduciary duty and errors and omissions
- No deductible will apply for most risks
Visit our dedicated website, www.fiduciaryinsurance.com, to learn more about fiduciary insurance.