Employee Plan Sponsors Face Significant Fiduciary Exposures to Lawsuits

Offering a retirement plan to employees is both rewarding to the employer that is helping its employees achieve their future goals, and of course, to employees who are working towards building a nest egg to be able to live comfortably during their golden years. But with these plans, come responsibilities and obligations that if not followed can result in lawsuits.

Companies that sponsor employee benefit plans are exposed to significant risks that fall under the general category of fiduciary responsibility. As such, they need to secure fiduciary liability insurance. This doesn’t only apply to those that have ERISA (Employee Retirement Income Security Act) plans; those that offer non-ERISA plans also need this coverage, including multi-employer plans, known as Taft-Hartley plans, that are provided by unions.

Fiduciary Liability Risks

Fiduciary liability risks involve allegations made against a fiduciary: the individual who handles the money or benefits. Usually allegations involve a breach of duty. The accusation can focus on:

an error or negligence in administering a plan, including but not necessarily limited to misinterpretation of plan documents
providing imprudent investment options to plan participants
misrepresenting investments
mishandling enrollment or other paperwork, and giving bad advice or faulty instructions to participants.

Fiduciary Liability Coverage

Because the handling of retirement or medical benefits plans can be highly complex, insuring fiduciaries is critical. One should work with an agency that is thoroughly involved in the risk landscape of the financial services sector and can provide the solid advice and top-quality insurance that is needed, while at the same has access to a number of insurance companies in order to obtain a reasonable price.

Fiduciary liability policies can cover expenses associated with civil lawsuits, written demands for damages that haven’t proceeded to court, administrative or regulatory actions, and investigations by the government or an official agency. Furthermore, coverage options include legal defense fees, awards to or settlements with claimants, and voluntary correction programs even when there isn’t a claim. The specific coverage a company can obtain depends on the insurance agreement that is selected.

If the company does provide an ERISA plan, talk to an insurance agent about obtaining an ERISA bond. This is required by law for all applicable plans. Also inquire about employment benefit liability insurance endorsements, which can enhance a general liability insurance policy to cover errors in the administration of a plan.