What is Fiduciary Liability Insurance?
A fiduciary is person or entity with the authority to act on behalf of others, and with the obligation to meet a high standard of conduct. (See References 3). The responsibilities of individuals and entities who serve in a fiduciary capacity for employee benefit and pension plans are defined by the Employee Retirement Income Security Act of 1974 (ERISA). Fiduciary liability insurance is a type of coverage which is designed to protect fiduciaries of a pension and benefit plan covered by ERISA from claims that they breached their fiduciary obligations to the plan. (See References 1, 2)
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Employee Retirement Income Security Act (ERISA)
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ERISA was enacted to protect the interests of the beneficiaries of employee benefit and pension plans. Examples of programs that come within the coverage of ERISA include pension, health, life and disability plans. An individual or an entity is considered a fiduciary under ERISA if the individual or entity is named in the plan documents or is designated as a fiduciary by the sponsor of the plan. A fiduciary under ERISA is also any person or entity with discretionary authority over the management or disposition of plan assets, or who receives compensation for investment advice. (See References 1,2)
Fiduciary Liability Insurance
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ERISA defined the responsibilities of fiduciaries of pension and benefit plans covered by ERISA. Fiduciary liability insurance is a type of insurance coverage that is intended to protect individuals or entities from claims that they have violated their fiduciary obligations as defined by ERISA. This insurance coverage would pertain, for example, to an allegation that a person in a fiduciary role gave bad advice to the plan, or made managerial or administrative mistakes, or failed to make prudent investment choices, or failed to calculate the plan benefits correctly. A fiduciary may also be considered liable for the actions of persons or entities who provide services to a plan, such as law firms or management investment firms. (See References 1, 2)
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Insurance Policy
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Fiduciary liability coverage may be obtained through an insurance policy devoted exclusively to this type of coverage. It may also be possible to obtain fiduciary liability coverage as an addition to other types of policies, such as as a commercial general liability policy, a trust errors and omissions liability policy, or a directors and officers liability policy. (See References 1)
Fidelity Bond
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Fidelity liability insurance coverage is intended to protect the personal and professional assets of a fiduciary if there is a claim that the fiduciary breached its obligations to the plan. A fidelity bond, on the hand, is a type of coverage that is intended to protect the plan and its beneficiaries if the plan is injured financially by a fiduciary's wrongdoing. ERISA mandates that anyone who handles plan assets must obtain a bond. (See References 1, 2)
Employee Benefit Liability Insurance
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Another type of coverage that is available for plan fiduciaries is employee benefit liability insurance. This type of policy covers errors and omissions in the administration of a plan, such as failing to enroll an eligible person in the plan. This type of coverage can be added on to a commercial general liability insurance policy. (See References 1, 2)
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