Preventing Harm to your Fiduciaries

Learn the difference between important policies to ensure appropriate fiduciary protection.

by Emily Tschimperle, CISR

Perfect business practices, while a worthy goal, are impossible to achieve. To protect your business, it is important to hold insurance policies that prevent lasting harm from both mistakes and wrongdoing. Any company that sponsors a 401(k) retirement plan, profit-sharing plan, or welfare plan such as a medical, accident or a group life plan needs Fiduciary Liability coverage to protect against errors in plan administration and breaches of fiduciary duty under ERISA.

Definition of fiduciary

A “fiduciary” can be any employee who has discretionary authority or control with respect to the management or administration of the plan or its assets. Fiduciary lawsuits can involve a broad range of allegations such as: Denial or change or benefits, administrative error, wrongful termination of plan, and imprudent investment of assets.

There are three main policy types that solve different aspects of this risk. Each provides different kinds of protection.

ERISA Bond

ERISA stands for the Employee Retirement Income Security Act of 1974. This Act governs fiduciary conduct to ensure the interests of the plan participants and beneficiaries are protected. There is a statutory requirement to bond 10 percent of plan assets up to $500,000, or whichever is less (or $1 million for plans that hold a substantial amount of employer securities). An ERISA Bond covers only “actual employee theft” of plan assets.

Employee Benefits Liability

Employee Benefits Liability covers only administrative errors and omissions of the employee benefit plans. This coverage is part of the General Liability policy and does not protect against breach of fiduciary duties under ERISA.

Fiduciary Liability

Fiduciary Liability, on the other hand, covers breaches of ERISA and administrative errors and omissions of the employee benefit plans (i.e. Employee Benefits Liability). It protects the organization, subsidiaries, directors, officers, employees, and the benefit plans themselves against losses resulting from claims under two types of alleged wrongdoings. The first type, breach of fiduciary duties, is any sort of violation of the duties imposed upon fiduciaries by ERISA. The second type, wrongful administration, is any negligent error or omission while administering the plan.

Emily Tschimperle is a client executive in RJF’s Management Liability Group. She can be reached at 763-746-8247 or tschimperlee@rjfagencies.com.