Fiduciary Liability Insurance is an important coverage part for any employer with an ERISA based retirement plan such as a 401k or pension plan.
In an earlier post, we described what an ERISA Bond is; which is a form of Fidelity protection. Business owners and some insurance brokers confuse fidelity and fiduciary. Unfortunately, the two coverages couldn’t be more different.
Fidelity protects a pension or other qualified retirement plan from the theft or embezzlement of money from the fund.
Fiduciary Liability Insurance protects the trustees of a qualified retirement plan – who are often the business owners/principals – from lawsuits that may allege breaches of fiduciary duty. Fiduciary duties are defined by ERISA and essentially are the trustees’ responsibilities to act prudently and in the best interests of the employees participating in the retirement plan and their beneficiaries.
Fiduciary coverage is usually made part of a Management Liability policy which will include D&O (directors & officers) liability and Employment Practice Liability often called EPLI. For private companies combining D&O, EPLI and Fiduciary under one policy are the most economical and efficient manner to purchase these coverage parts. In larger firms and public companies, these coverage parts may be broken out into separate policies to afford broader limits and protections than a combined policy.
Do you need Fiduciary Liability Insurance if you have a qualified retirement plan?
In my opinion, yes. For the simple reason that the fiduciary liability placed on trustees of plans; which are often the business owners, is NOT covered anywhere else. Meaning if you have a claim from an employee or even a retired employee that you as the business owner/trustee of a 401k breached your fiduciary duties that claim will not be covered unless you have Fiduciary Liability Insurance.
Where do fiduciary claims arise from? Here are a few examples:
- Failure to have a sufficient number of investment choices in a self-directed 401k.
- Having a 401k plan placed inside a program where the fee load is unusually high.
- Failure to update plan documents as mandated by ERISA.
- Mismanagement of a pension plan to not maximize returns.
But keep in mind that a disgruntled employee, participant, or beneficiary could bring suit for any number of reasons and without Fiduciary, you’ll be defending that claim out of pocket.
Have other questions related to Fiduciary coverage? Why not click the Next Steps button below and let’s set up some time to chat. Thanks