Fiduciary Liability insurance helps protect the personal assets of company fiduciaries, in addition to the financial assets of the company and employee benefit plans against lawsuits. Insurance coverage will be pay for lawsuit defense costs, judgments, and settlements. Some policies can be designed to pay for negotiations over demands for damages outside of litigation, costs associated with regulatory actions or governmental investigations, settlements and damage awards. Some also offer help with the expenses of voluntary corrective actions even when no claim has been filed. Fiduciary Liability claims can involve a broad range of allegations, such as: denial or change (especially reduction) of benefits; administrative error; improper advice or counsel; wrongful termination of a plan; failure to adequately fund a plan; conflict of interest; imprudent investment of assets or lack of investment diversity; and improper choice of insurance company, mutual fund, or third-party service provider.
Companies sponsoring a retirement plan, such as a defined contribution plan or 401(k), profit-sharing plan or employee stock option plan (ESOP), defined benefit plan, or employee benefit health or accident plans should be carrying this coverage to protect against errors in plan administration and breaches of duty under ERISA. But there are a host of common fiduciary mistakes that companies make, which can leave them open to claims or unprotected in the event of a suit. Following is a list of just some these errors:
1. Not properly identifying all fiduciaries.
Some individuals in an organization don’t realize that they would be considered a fiduciary of a retirement plan and therefore are unaware of their duties in their capacity as a fiduciary. Fiduciaries include: trustees (except, generally, in the case of 403(b) contracts, which don’t usually use trusts to hold assets), investment advisors, all those involved in exercising discretion in plan administration, all administrative committee members, and individuals people who choose committee officials (such as board members).
2. Failure to have the appropriate fiduciary liability coverage in place.
Some think that their D&O Liability, Employment Practices Liability, or the Employment Benefits Liability coverage under a Commercial General Liability policy may provide coverage in the event they’re personally liable for any mistakes they might make as fiduciaries. But these policies don’t provide coverage in the case of an ERISA retirement plan. Moreover, an ERISA fidelity bond only safeguards against employee fraud or dishonesty, not fiduciary liability.
3. Failure to take appropriate actions and document such actions. Sometimes fiduciary committees procrastinate on taking action—or do take action, but fail to document it. In either case, it leave fiduciaries open to costly lawsuits, especially when it’s clear that something should have been done and wasn’t—or that it can’t be proved to have been done. Be sure that fiduciaries take action when necessary, and keep records of what they did and when in any meeting minutes so there’s a record of what was done.
4. Failure to follow the plan’s investment policy statement (IPS).
An IPS needs to be followed as a matter of due diligence. If an IPS cannot be executed, or executed properly, perhaps it’s time to re-evaluate it.
5. Not properly benchmarking plan expenses.
Fiduciaries should know how much everything within a plan costs, as well as how much money is paid out and to whom. They also need to know whether expenses are comparable with other plans, and keep records of everything. With the Department of Labor looking closely at expenditures, fiduciaries need to be sure that record-keepers and/or advisors provide them with transparent data on money paid to all service providers, including revenue sharing.
Axis Insurance Services specializes in providing Fiduciary Liability insurance and can help you secure appropriate coverage based on your company’s needs. Give us a call at (877) 787-5258 to learn more about how we can help protect you.