A ‘fiduciary’, someone who accepts the legal and ethical responsibility of taking care of money or assets for another person, why would that individual or group of individuals within an organization need specialized insurance coverage?! Fiduciary Liability insurance protects and defends against allegations of negligence, errors and omissions, and breaches of duty brought forth against individuals who oversee the administration and decision making on behalf of 401(k) plans, pension plans, medical plans, or any other health, welfare, or employee benefit plan the company sponsors.
Who Needs Fiduciary Liability Coverage?
Who needs Fiduciary Liability coverage? The answer to that is quite simple, any business that sponsors of administers benefit plans such as retirement or health insurance for their employees.
There are three very distinct insurance products that often get intertwined and confused when thinking about this line of business.
ERISA Fidelity Insurance
In 1974 The Employee Retirement Income Security Act (ERISA) was enacted to protect the interests of employee benefit plan participants. An ERISA bond is a first party coverage that is required by law and protects the assets of the plan from theft, Teresa Leonard one of WalkerHughes’ Management Liability specialists shares to highlight the differences between these insurance solutions.
Employee Benefits Liability
Employee Benefits Liability is commonly confused with ERISA bonds and Fiduciary Liability insurance. EBL is provided by the General Liability carrier and is coverage for administrative errors only. This would include enrollments, terminations, explaining benefits.
Fiduciary Liability exposures are not covered under an ERISA bond. They do include the same coverages as EBL, but a much broader spectrum. EBL covers the administrative errors where Fiduciary Liability generally insures the plan against losses caused by breaches of fiduciary responsibilities, shared by Jena Crouch one of WalkerHughes’ Management Liability specialists who helps define these products.
Why Do You Need Fiduciary Liability Coverage?
Any individuals who are involved in with the management of the employee benefit plans are fiduciaries and can be held PERSONALLY responsible for breach of their fiduciary duties. Fiduciary liability is not required by law and does not protect the assets of the plan. It protects the assets of the fiduciaries.
Types of Fiduciary Liability claims that can be brought forth against you and your company include not only errors and omissions, but also changing elections, breaches of duty and negligence. What do we mean by breaches of duty and negligence?! A claim could be brought forward when new investment options are found to bring higher fees and less return than prior options or if reductions in medical coverage were taken without proper notifications. While these errors may seem like tiny mishaps, the resulting financial damages can be devastating. The average defense costs per Fiduciary Liability claim is $365,000, with an average settlement of $994,000.
Regulatory fines can also be assessed for ERISA violations, there would be no coverage under an ERISA bond for such fees, but some of the fines may be covered under a Fiduciary policy. Such as, HIPPA fines and penalties, Affordable Care Act penalties, IRS Section 4975 penalties, Voluntary compliance IRS tax penalties, and Section 502 (c) penalties.
As businesses continue to provide the best product and services to their clients, it is important to also provide competitive and comprehensive benefit plans to their employees as well. At WalkerHughes, we are here to provide you with the protection you need on both fronts – insuring your products and services, as well as, the Fiduciary exposures to your benefits plans.