If you are the officer, owner or director who makes the decisions about your company’s employee benefit plans, your personal assets may be at stake without the protection of fiduciary and employee benefits coverage.
WHAT IS IT?
You may already be familiar with fidelity bonds required by the Employee Retirement Income Security Act of 1974 (ERISA) that protects the employee benefit plans from theft by fiduciaries. However, fiduciary and employee benefits coverage helps protect the decision makers in areas that the ERISA bond does not cover: liability claims, mismanagement or errors and omissions made while administering employee benefit plans such as 401(k), Employee Stock Ownership Plan (ESOP) and health insurance.
WHO ARE FIDUCIARIES?
Fiduciaries could be the plan’s trustees, investment committee members or even responsible parties who appoint those people. Even if you hire other professionals to invest assets or administer the benefits plan for your business, you retain the ultimate responsibility for selecting, maintaining and monitoring the performance of those professional managers.
Fiduciaries also could be those you have hired or placed in authority for administering your benefit plans. And, especially now that the Affordable Care Act has redefined our nation’s healthcare system, these plans are ever evolving and changing.
WHY DO YOU AND YOUR ORGANIZATION NEED IT?
Your fiduciaries could make an honest mistake in a change of forms, coverage explanations or the employee’s transfer in and out of a plan, leaving your organization subject to lawsuits, fines and penalties. As the decision maker, you may be named personally in a lawsuit. Claims can be brought by plan participants, the Department of Labor or a participant’s legal estate and may include allegations of:
- Improper advice or disclosure
- Breach of fiduciary duty
- Neglect in administrating a plan
- Lack of investment diversity
- Inappropriate selection of advisors or even service providers
Consult your legal counsel and your company’s insurance professional to see if fiduciary and employee benefits coverage could help your organization cover the expense of litigation and the costs associated with these allegations.
RISK MANAGEMENT TIPS
Your organization can enhance your ERISA risk management program and limit your exposure by:
- Doing regular performance reviews of your staff who oversee and make plan decisions.
- Using established investment firms when handling plan assets.
- Having an actuarial firm review your plans annually.
- Using a law firm with experience in ERISA regulations to make sure plans are ERISA compliant.
- Consulting your local independent insurance agent.
Coverages described here are in the most general terms and are subject to actual policy conditions and exclusions. For actual coverage wording, conditions and exclusions, refer to the policy or contact your independent agent. Neither The Cincinnati Insurance Company nor its affiliates or representatives offer legal advice. Consult with your attorney about your specific situation.