With greater enforcement of the Employee Retirement Income Security Act of 1974 (ERISA) and an aging workforce, the liability exposure for fiduciaries of employee benefit plans is dramatically increasing. Employers and corporate executives need to assess if they are protected while acting in a fiduciary capacity under such benefit plans. One option is risk transfer to a Fiduciary Liability policy.
Q: What does a Fiduciary Policy cover?
A: Common insurance policies like General Liability (GL), Directors and Officers Liability (D&O) and Employment Practices Liability (EPL) typically exclude claims arising from ERISA and other similar employee benefit laws. An Employee Benefit Liability (EBL) policy does respond to errors in administering employee fringe benefits. However, a Fiduciary Liability policy also protects from breach of fiduciary duties as governed by ERISA.
Q: Who is a Fiduciary?
A: Any person who exercises any discretionary authority or control with respect to the management or administration of a benefit plan and its assets. This could include the plan sponsor, administrator, investment manager, or company executives.
Q: What are their duties?
A: To act in the best interest of the plan participants and provide a “prudent” person level of care, skill and diligence. They must act in accordance with the plan document and without conflicts of interest.
Q: Who can allege wrongdoing?
A: Plan participants (employees), their beneficiaries, and government or regulatory entities. This may include the Internal Revenue Service, Department of Labor, Pension Benefit Guarantee Corporation, Securities and Exchange Commission, and state Attorney General’s.
Q: What’s the risk if we are not covered?
A: Fiduciaries can be held personally liable for any plan losses resulting from the breach of their duties. Corporate indemnification to the individual fiduciaries may be restricted by law. Any gains or profits that were attained through misuse of plan assets could also trigger liability. Damages may include fines and penalties, and the defense can be complex and costly.
Any corporation that offers employee welfare benefits or retirement plans should consider protecting their balance sheet and executives with a Fiduciary Liability insurance policy. V3’s Professional Lines division offers this coverage as part of their Vantage Point product for small businesses.
For more information on our Fiduciary Liability policy and key underwriting factors, as well as other coverage available, reach out to Brad Lacey.