Fiduciary Liability Insurance
A plan fiduciary is anyone who exercises either intentional or unintentional discretionary authority over an employee benefit plan.
Under ERISA, fiduciaries may be held personally liable for breach of their responsibilities in the administration or handling of employee benefit plans. Fiduciaries may find themselves personally liable for the cost of their own defense, judgments and penalties. Fiduciary Liability Insurance is not required by ERISA. However, it is strongly recommended because your personal assets are at stake. Many fiduciaries believe incorrectly that their ERISA fidelity bond protects them from both fiduciary and personal liability.
This coverage protects plan sponsors and trustees from defense cost and penalties if they are sued for fiduciary decisions they make or don’t make for an employee benefit plan. Plan fiduciaries are open to many types of lawsuits. Plan participants may sue individually or as a class if they feel that benefits were misrepresented or if they believe that different decisions by the trustees could have yielded a higher return. They may even sue over enrollment issues.
Furthermore, many think that this type of coverage is included in their D&O policy or their advisors E&O policy. Most D&O and E&O policies exclude fiduciary liability exposures as well as those exposures pertaining to the Employee Retirement Income Security Act (ERISA).
ERISA also broadly defines the types of employee benefit plans for which fiduciaries are responsible. This extensive list can include pension plans, profit sharing plans, employee stock ownership plans (ESOPs), and even health and welfare plans.
Moreover, designated fiduciaries are not the only targets of such lawsuits; targets can also include the employer and even the plan itself. Claims can be brought by plan participants, participants’ legal estates, the Department of Labor, and the Pension Benefit Guaranty Corporation.