Fiduciary Liability and Employee Benefits Liability

Fiduciary Liability and Employee Benefits Liability

Fiduciary liability is an insurance that protects persons and organizations against liability from breaches of fiduciary duty that they incur in creating and managing employee benefits programs.

Claims against fiduciaries can involve plan mergers or terminations, claims caused by negligence, claims involving plan disclosures, claims caused by imprudent investments, claims alleging failure to pursue delinquent contributions, and claims involving a number of miscellaneous allegations.

Fiduciary liability insurance, ERISA-mandated bonding requirements, and employee benefits liability coverage often are confused.

Fiduciary liability insurance – Fiduciary coverage applies to breaches of duty specified by ERISA (e.g., failure to prudently invest assets).

ERISA mandated bond – ERISA mandates that fiduciaries and persons who handle plan funds or other plan assets to be bonded for a minimum of 10% of the aggregate amount handled subject to a maximum bond of $500,000. The bond basically covers theft of plan assets by a fiduciary.

Employee benefits liability insurance – Employee benefits liability coverage applies to administrative (i.e., non-judgmental) errors involving pension and benefit plans (e.g., failing to name an intended beneficiary on a company-provided life insurance policy).

Most, but not all, fiduciary liability forms also cover employee benefits liability claims, although employee benefits liability can be purchased as an endorsement to most commercial general liability policies at a fairly modest cost.

Note that of the three coverages, only the ERISA bond is required by law. Contact us for more information.