Our Thoughts

Fiduciary Liability Insurance: Have You Covered Your Assets?

You’ve done right by your employees and created a retirement benefit plan that works for them as well as your business. 

Now take the next step. Consider whether fiduciary liability insurance is worth the cost to protect your company and personal assets. 

Legal risk is probably not top of mind as you plan your company’s retirement benefits. Nevertheless, the Employee Retirement Income Security Act of 1974 (ERISA) places a fiduciary duty on plan administrators, managers, and trustees. ERISA assigns these fiduciaries specific responsibilities to represent the best interests of the plan’s participants.  

Even well-intentioned fiduciaries can trip on red tape 

The Department of Labor (DOL) enforces ERISA regulations. They can be complex and require regular monitoring. Just a few examples of fiduciary responsibilities include: 

  • Follow the terms of benefit plan documents. 
  • Diversify investments. 
  • Monitor investment performance. 
  • Avoid conflicts of interest. 
  • Limit expenses to reasonable costs of administering the plan. 
  • Document decision-making processes. 

You may do your best to fulfill your duties and still find yourself at legal risk:  

  • Fiduciary responsibilities can extend to people on your team who may not even realize they are bound by ERISA. 
  • Fiduciary violations are subject to government penalties and/or legal challenges. 
  • Litigation can be costly even when a claim has no merit. 

Balance insurance costs with peace of mind 

Fiduciary Liability insurance is meant to protect your business and assets against claims of breach of fiduciary duties. A policy can reduce litigation costs for your business and protect personal and company assets. Many policies even cover the cost of DOL investigations. 

Here are points to consider as you think about insuring your business:  

  • ERISA requires fidelity bonds for the benefit of the retirement plan or plan beneficiaries who may be harmed by dishonest administrators or trustees. But this type of insurance does not protect administrators or trustees themselves. Your business could still be subject to costly litigation. 
  • You can purchase fiduciary liability insurance as a separate policy. In most cases, though, it is offered as a rider on policies that cover employment practices and director and officer liability. 
  • The best fiduciary liability insurance policy is generally one with the broadest possible statement of coverage. This is because ERISA’s definition of a fiduciary is functional and covers anyone who acts in a fiduciary role, no matter his or her title. The people on your team who select retirement plan investments, for example, are fiduciaries, even if they haven’t formally been assigned that duty. 
  • Fiduciary liability insurance is not mandatory. Your company may pay premiums for years and never need to take advantage of the coverage. The decision to purchase a policy comes down to weighing the cost against the risks posed by complex regulations, litigation, and steep prices. 

With so much at stake, fiduciary liability insurance is often the wisest way to limit potential liability.  While we do not offer this insurance as a product, FJY Financial can help you decide if this protection makes sense for your business.  

Contact us for more information. We’re happy to hear from you.