What is Fiduciary Liability Insurance?
Fiduciary Liability Insurance pays on behalf of the insured, the legal liability arising from claims for alleged failure to prudently act within the meaning of the Pension Reform Act of 1974. “Insured” is variously defined as a trust or employee benefit plan, any trustee, officer or employee of the trust or employee benefit plan, employer who is sole sponsor of a plan and any other individual or organization designated as a fiduciary. Group life and medical expense plans, as well as pension and retirement plans, are within the scope of the law.

Employee benefits liability coverage often is combined with fiduciary liability insurance policies, subject to a single limit. This is a distinct disadvantage because fiduciary liability presents an exposure that is infrequent but severe. The purpose for purchasing a fiduciary liability insurance policy, therefore, can be wiped out with frequent employee benefits liability claims.

When do I need Fiduciary Liability Insurance?
Are you a fiduciary? Are your personal assets at risk? Are you subject to lawsuits, fines, and penalties? Many people are and don’t know it.

If you are an owner or officer who makes decisions about your company’s 401(k) plan or other qualified employee benefit plan(s), odds are, your personal assets are at risk! Under the Employee Retirement Income Security Act of 1974, fiduciaries can be held personally liable for losses to a benefit plan incurred as a result of their alleged errors, omissions or breach of their fiduciary duties.

Employment Liability Insurance does not cover all situations of fiduciary responsibility, especially those regarding imprudent investment of funds.

Why do I need Fiduciary Liability Insurance?
Under ERISA, fiduciaries may be held personally liable for breach of their responsibilities in the administration or handling of employee benefit plans. Fiduciary Liability Insurance is not required by ERISA. However, it is strongly recommended if you are a fiduciary of a welfare and/or pension plan because your personal assets are at stake. Many fiduciaries believe incorrectly that their ERISA fidelity bond protects their personal assets.

Furthermore, many think that this type of coverage is included in their D&O policy. Most D&O policies exclude fiduciary liability exposures as well as those exposures pertaining to the Employee Retirement Income Security Act (ERISA).

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.

A company can help mitigate the personal liability of its fiduciaries by following the advice of outside experts and by selecting diverse, financially sound investments, but, it cannot entirely eliminate their liability.