The Basics of Fiduciary Liability Coverage
To keep your business operations and employees protected and secured, it’s important to have proper coverage for Directors & Officers liability and Employment Practices liability. A sister coverage to these, which can often be built into one cohesive package policy, is Fiduciary liability.
What is Fiduciary Liability Coverage and when do I need it?
Businesses that offer their employees benefit options — such as pension plans, retirement accounts, or health care coverage — often task an individual or group of individuals called fiduciaries to oversee the benefits plans.
The job of a fiduciary is to select advisors and investments, minimize expenses, and follow plan documents exactly. Under the Employee Retirement Income Security Act (ERISA), they must act in the interest of plan participants in order to avoid liability claims related to the denial of benefits, administrative error, improper advice, wrongful termination of a plan, and similar allegations stemming from plan management.
What does Fiduciary Liability Coverage provide?
Fiduciary liability is essential for an organization to properly protect its fiduciaries. When a policy is in place, it can provide:
ERISA liability protection
- Per ERISA requirement, a fiduciary can be held liable for any breach of duties, errors, or omissions. Fiduciary liability insurance is designed to protect plan sponsors and their employees against such claims — some of which can easily reach six figures or more.
Protection from common fiduciary claims
- Claims can arise for any number of reasons — administrative error, wrongful termination of a plan, improper advice, or a conflict of interest — and can come from any number of parties, including an employee or even the Department of Labor.
- The cost of fiduciary liability varies based on a business’s assets and number of plan participants. But, on average, coverage is relatively affordable.
Specialty protection not found in similar policies
- Companies often wrongfully assume that Employee Benefits liability (EBL) or Directors & Officers (D&O) liability policies will protect against fiduciary claims. EBL insurance is generally limited to covering errors in plan administration, but does not provide protection for ERISA violations. D&O policies typically exclude EBL or ERISA-related claims.
Coverage beyond fidelity bonds
- ERISA bonds are required by law and are designed to protect plans against losses related to acts of theft or fraud. These plans only protect employee benefits, not a fiduciary’s liability. They do not provide any form of payment for legal defenses or damages related to a fiduciary claim.
Protecting What Matters With Fiduciary Liability Coverage
An employee benefits plan is often a key element in attracting and retaining good talent. A lot of care and thought goes into choosing the correct plan for a business’s employees, so it is crucial that the same diligence be put into protecting it and its overseers.
If you have questions on your policy or coverage, you can reach out to your Account Manager with M&G at any time for personalized assistance and expertise.