If you have discretionary authority for the management or administration of an employee benefit plan that is subject to the Employee Retirement Income Security Act (ERISA), or if you exercise any authority or control with respect to the management or disposition of the assets of an ERISA plan, then you are considered a fiduciary of that plan. Under ERISA, plan fiduciaries are personally responsible for fiduciary failures, meaning that your personal assets could be at risk. In a worst-case scenario, even personal bankruptcy would not offer protection .
Over 6,500 civil ERISA-related lawsuits were filed in the U.S. District Courts in the past 10 years.
The U.S. Department of Labor is very active in enforcement related to ERISA-covered plans. In 2017 alone, the DOL closed over 1,700 civil investigations, with over 65% of those investigations resulting in fines or corrections. In addition, plan participants and beneficiaries remain litigious. In fact, over 6,500 civil ERISA-related lawsuits were filed in U.S. District Courts in each of the past 10 years. Common allegations include securities fraud (employer stock drop cases), improper plan valuation, and wrongful plan amendments and terminations. Also of great concern among plan sponsors is the proliferation of the so-called “excessive fee” litigation in which plaintiffs allege that plan fiduciaries have overpaid for administration and/or investment services provided to their 401(k) plans. No industry sector is immune from excessive fee litigation, and more than 100 such lawsuits have been filed since 2006. Alarmingly, close to 20 excessive fee lawsuits have settled for more than $10 million each.
A notable misperception exists that an ERISA fidelity bond provides coverage for these risks. While it is true that ERISA requires plan fiduciaries and those who handle plan funds or assets to be bonded, such bonds offer protection to the plan only from losses caused by dishonest or fraudulent actions. ERISA fidelity bonds do not protect you from losses arising from breaches of fiduciary duty (such as the failure to prudently invest plan assets) or from plan administration errors. These exposures require specific fiduciary liability insurance.
Fiduciary liability insurance is designed to provide insurance protection for:
- The company/sponsor organization and its subsidiaries
- Covered plans, including:
- Qualified plans—e.g., welfare (such as medical, dental, life insurance, disability, and accident plans) and pension (defined benefit and defined contribution plans)
- Non-qualified plans—e.g., deferred compensation programs, supplemental executive retirement programs, and top-hat plans
- Insured persons—i.e., any natural person serving as a past, present, or future director, officer, partner, or employee of the sponsor organization or a plan, in his/ her capacity as a fiduciary, administrator, or trustee of a plan
Claims covered under fiduciary liability insurance include:
- Breaches of fiduciary duty—violations of fiduciary obligations, responsibilities, or duties under ERISA and similar laws worldwide (where permissible)
- Administration—acts, errors, or omissions in the administration of a plan such as:
- Advising, counseling, or giving notice to employees, participants, and beneficiaries
- Providing interpretations
- Handling records
- Activities affecting enrollment, termination, or cancellation of employees, participants, and beneficiaries under the plan
So, if you are a fiduciary of your employer’s retirement and/or welfare plans, ask your risk management department if your employer has purchased a fiduciary liability insurance policy. Remember, your personal assets are on the line.