In today’s ever-shifting legal environment, employers are increasingly being held accountable for the benefits options they offer employees.
Under the Employee Retirement Income Security Act of 1974 (ERISA), fiduciaries can be held personally liable for losses to a benefit plan
incurred as a result of their alleged errors or omissions or breach of their fiduciary duties.
Lawsuits against a privately owned company, its fiduciaries, and its plans can be brought by a host of parties, including:
- Plan participants (employees).
- The government: The Department of Labor and The Pension Benefit Guarantee Corporation.
Fiduciary liability claims can involve a broad range of allegations, such as:
- Denial or change (especially reduction) of benefits.
- Administrative error.
- Improper advice or counsel.
- Wrongful termination of a plan.
- Failure to adequately fund a plan.
- Conflict of interest.
- Imprudent investment of assets or lack of investment diversity.
- Imprudent choice of insurance company, mutual fund, or third-party service provider.
By sponsoring a retirement plan, such as a defined contribution plan or 401(k), profit-sharing plan or employee stock option plan (ESOP), defined benefit plan, or welfare plans such as health or accident plans, a private company may need protection against errors in plan administration and breaches of duty under ERISA.
Your Private Company May Need Fiduciary Liability Insurance Because:
- It fills in gaps in traditional coverage. It is a common misconception that the Employee Benefits Liability (EBL) section of General Liability (GL) insurance or Directors and Officers (D&O) liability insurance will take care of every possible lawsuit against fiduciaries. However, EBL insurance protects against claims of errors in plan administration, but not against the more expensive and complex ERISA violation claims.
- D&O liability insurance typically excludes claims for both EBL and breach of ERISA fiduciary duty.
- By accessing the advice of experts and choosing and offering quality, diverse investments, you can mitigate your fiduciary liability exposure, but you can’t eliminate it. Even a company sponsoring only a 401(k) is exposed. Employers are increasingly held liable for the selections they are giving to their employees.
Fiduciaries without fiduciary liability insurance may be forced to pay for lawsuit defense costs, judgments, and settlements out of their own pockets.