Media Center

By Tiffany Fronek

Insurance requirements for administering employee plan benefits confuse many fiduciaries and retirement plan officials. While an ERISA or fidelity bond is required by law, fiduciary liability insurance can also be helpful.

So, what’s the difference?

Purpose: An ERISA bond policy protects an employer-sponsored retirement plan from dishonesty or fraud, such as theft.

Overview: The Employee Retirement Income Security Act of 1974 (ERISA) is a federal law requiring that a fidelity/ERISA bond be secured for any eligible employer-sponsored retirement, pension and welfare benefit plans. An ERISA bond protects the individual participants in these plans from loss due to mismanagement, dishonesty and fraud.

How It’s Useful: If the plan administrator embezzles retirement funds, the ERISA bond covers the loss of the plan’s assets, so employees don’t lose their retirement savings.

Limit Required: The ERISA bond must represent at least 10% of the plan’s assets.

Fiduciary Liability – Optional Coverage

Purpose: Fiduciary liability insurance covers a company’s benefit plans and protects its directors, trustees, officers and employees from costly litigation. It covers honest fiduciaries who may be liable to participants for plan losses due to unintentional mismanagement or neglect of the plans. This includes retirement, health and other employee welfare plans.

Overview: This coverage provides a safety net to key executives, also known as fiduciaries, who are required to act in the best interest of the plan participants and protect the plan assets. Under ERISA law, if a plan is not managed properly and benefits are lost because employees were not given adequate information or instruction, fiduciaries can be held personally liable to make good on any losses they’re responsible for. Coverage may extend to:

• Legal defense costs and the financial losses the plan incurs due to errors, omissions or breach of fiduciary duty.
• Cost of plan corrections made through voluntary compliance programs.
• Defense costs for regulatory investigations and penalties, which cannot be paid from the plan assets.

Fiduciary Liability Insurance is Useful Because it Covers:

• Errors in administering plans, such as improper enrollment or terminations, that result in lost benefits
• Irresponsible retirement plan investment practices, such as failure to monitor investments or the actions of an outside investment firm, failure to offer adequate diversification options, charging excessive fees, or conflict of interest
• Wrongful denial of employee benefits
• Failure to monitor third-party service providers
• When administering health and other welfare plans, fiduciary liability insurance also covers inadequate policy communications, errors in counseling and inaccurate interpretations to employees that result in lost benefits.

Limit Required: Although flexible, the typical limit starts at $1 million.

This is a confusing subject, but Oswald’s risk advisors help clients understand how coverages respond differently and why they are important to you. Contact us so we can help you find the right coverage to comply with the law and best protect your company.