According to the Employment Retirement Income Security Act (ERISA) 1974, anyone who manages employee benefits, pension plans, savings, health and welfare plans, as well as profit-sharing plans is considered a fiduciary.
The fiduciary is expected to manage these plans in such a way as to serve the interest of all participating employees. As a result, any person or organization with an ERISA title of fiduciary can face certain liabilities if employees feel that there has been a breach of duty.
For instance, if employees feel that there has been a mismanagement of funds, administrative errors, delays in transfers or distribution of benefits, or misguided advice on investment allocation, they can make a claim against you as the fiduciary.
In order to protect your assets as an employer or company against fiduciary liability claims, you need fiduciary liability insurance. The cost of litigation is always high, and there are risks of you losing a lot of money and assets in the process.
With fiduciary liability insurance, if a claim is made against you, the insurance can cover the legal expenses as well as financial losses resulting from a breach of duty as a fiduciary as well as errors and omissions incurred by the plan. It covers both the company as well as individuals that have acted as fiduciaries, such as company directors, trustees, employees and officers.
There are two kinds of coverage with a close relationship to insurance for fiduciary liability. These two types of coverage include Fidelity Bonds and Employee Benefit Liability (EBL) Insurance.
Required by the law, these are referred to as ERISA bonding. It is a kind of insurance coverage for cases of dishonesty where unscrupulous administrators cause harm to employee benefits plans. In such a case, the bonds are used. However, they only cover the plan as well as its beneficiaries. The trustees are not protected from claims that make fidelity bonds different from typical fiduciary liability insurance.
This coverage takes care of administrative errors and omissions (E&O) within a plan, such as failing to enroll a member of the staff. However, it does not cover imprudent investments.
Given their limitations, it is prudent to apply for fiduciary insurance.
Most employers and companies think that they can have either of the above forms of insurance coverage, or simple employee benefits liability endorsement coverage, and they will be fine. That may be true if you are not anticipating claims of wrongful acts.
Another misconception is that as long as you have chosen a separate company to manage your employee benefits plans, then you are not liable to any claims of wrongful acts. The fact is, as their employer, you are liable even if you outsource the management of their plans.
Here at Berliner-Gelfand, our experts strongly advise that companies and employers who offer benefits and plans to their employees seriously consider applying for fiduciary insurance coverage to protect their personal and business assets in case of a claim.
Contact our fiduciary liability insurance professionals today for more information on insurance coverage for your employees and business.