Critical questions for plan sponsors: Do you have fiduciary insurance coverage?

Blocks that spell "PLAN"

Fiduciary insurance covers fiduciaries to an employer-sponsored retirement plan in the event they are charged with breach of fiduciary duty. It protects and pays the legal liability from claims for alleged failure to act prudently with regards to a retirement plan.

Unlike a fidelity bond, that protects business owners from losses that result from fraudulent or dishonest employee actions, fiduciary insurance can help cover the cost of legal expenses as well as any settlement expenses should a plan sponsor be charged with a breach of fiduciary duty by either a plan participant or the Department of Labor. Fiduciary insurance is not required because inherently, as a fiduciary, legal liability is personal, absolute, and unlimited with regards to Employee Retirement Income Security Act (ERISA) claims. ERISA is a federal law that requires plans to provide participants with information about the plan, set standards and requires a claims and appeal process to be established for participants. It also gives participants the right to sue for benefits and breaches of fiduciary duty.

Anyone who is a fiduciary to the plan can be held personally liable for ERISA claims and may want to investigate coverage options, be it a business owner, trustee to the plan or anyone on the retirement plan committee. Having a policy is a prudent step to take to protect the company, the plan and personal assets. It’s important to note, if business owners are covered by directors and officer insurance (D&O), ERISA claims are often specifically excluded from such policies.

As a fiduciary, if an ERISA claim is brought against you, and you aren’t covered, get ready to write a big check! If brought to court and charged with a breach of fiduciary duty, not only do you have to make the plan whole for any losses to participants that resulted from the breach in fiduciary duty, but there can also be additional punitive claims, and taxes and surcharges, should the Department of Labor get involved. In addition to those losses and legal fees, your business may suffer from the loss of time associated with having to deal with a lawsuit. Your focus will be taken from running your business to sorting out the claim.

For informational purposes only.  Fort Pitt does not provide advice regarding insurance and insurance related products and services although Fort Pitt may be able to partner with other trusted professionals to deliver these services to you.