ERISA (the Employee Retirement Income Security Act of 1974) permits individual trustees or fiduciaries of employee benefit plans (like a 401k plan) to be held personally liable in the event of a financial loss to an employee. Even when the trustees of the 401k plan have the best of intentions, errors can occur and litigation can result. Many factors, like stock market performance, are completely out of the control of the trustee or fiduciary, yet they can still be liable.
Fiduciary Liability insurance is available to provide defense costs as well as settlement or indemnity costs when a trustee or fiduciary is alleged to have committed an error, misstatement or simply is accused of neglect of his or her duties.
Fiduciary liability is the ONLY insurance product that addresses the decisions and actions related to the management and administration of the employee benefit plans. ERISA requires the purchase of an ERISA bond or Fidelity bond and some insurers offer Employee Benefit Plan liability as a component of the commercial “package” insurance. Fiduciary liability insurance provides coverage that is not provided by either of these other products.
Any employer who offers benefit plans to their employees would benefit from having a Fiduciary liability policy in place. Many companies face increased risk factors for claims. Some of these factors include:
- Publicly traded organizations
- Companies offering a defined benefit or traditional pension plan (even if the plan is no longer accepting new participants
- Plans that include company stock (publicly traded or privately held)
- ESOP
- Plans that experience a change in plan administrator, benefit levels, eligibility requirements or other changes
- Companies facing financial challenges or distress
Public, private and non-profit entities all face potential liability if they offer any plan which is governed by ERISA. Defense costs coverage in a Fiduciary liability policy can be extremely valuable and these policies tend to have low deductibles. In some cases, first dollar coverage may even be available.
Contact the Executive Liability team at Van Gilder today to discuss the specific exposures of your company and the insurance solutions that are available.