Understanding Fiduciary Liability Insurance
Due to the increased frequency and severity of ERISA lawsuits, many employers, both large and small, should secure the protection of having fiduciary liability insurance. (Fiduciaries have personal liability for the decisions they make under ERISA, so this is an important topic to consider for committee members and plan fiduciaries).
- Fiduciary liability insurance is optional as opposed to the ERISA or fidelity bond, which is required, but it is something to consider for plan fiduciaries on a case-by-case basis.
Fiduciary liability insurance protects fiduciaries against liability arising from violations of their fiduciary obligations, responsibilities, or duties under ERISA, including the selection and monitoring of investments.
Generally, fiduciary liability insurance is designed to protect the sponsoring organization, the retirement plan, and certain individuals (including the plan sponsor’s directors, officers, and employees in their capacity as plan fiduciaries or administrators).
- Having a fiduciary indemnification agreement is an alternate option if the company chooses.
Rather than purchase fiduciary liability insurance, the plan sponsor can indemnify the fiduciary. Under an indemnification agreement, the plan sponsor will agree to pay any losses or claims suffered by the fiduciary.
- Insurance costs vary and there are several factors that influence the cost of fiduciary insurance coverage. These include (but are not limited to):
- the type of plan
- plan provisions
- how the policy is structured
- plan size
- type of investments held
- deductible
If you have additional questions about this topic, please contact us and we’d be happy to help.
This article is just one in a series on Best Practices for Investment Fiduciaries. Click here to access the entire series.
