Employers are not required to offer employee benefit plans or investment plans as part of a compensation package, but they are an advantageous way to attract and retain employees.
Despite their usefulness as a recruiting and retention tool, these plans carry hidden exposure for your company. If employers offer benefit plans, those plans must comply with the Employment Retirement Savings Act (ERISA) of 1974, a federal law that sets minimum standards for retirement and welfare plans in private companies, and provides extensive rules for transactions associated with those plans. There is no doubt that the provisions of ERISA are complex; often they are difficult to navigate without the help of an expert.
ERISA also establishes rules of conduct for fiduciaries that administer and manage the plans. Understanding a fiduciary’s roles and selecting the best candidates to manage your employee benefit plans is the first step in a risk management plan for this potentially costly exposure.
What is a Fiduciary?
A fiduciary is any person exercising discretionary control and authority, and given the primary responsibility to manage or administer an employee benefit and retirement plan and its assets.
Knowing what a fiduciary is and what their roles are is important because sometimes people have fiduciary responsibilities that may hold them personally liable—and they don’t even know it. Under ERISA, directors and officers have the ongoing duty to monitor the performance of fiduciaries or appoint fiduciaries. To successfully manage employee benefit plans, all those who serve in a fiduciary role must be aware of their legal responsibilities under ERISA, which includes using quality service providers and putting Fiduciary liability in place to protect both the company and individual Fiduciaries.
Select Quality Fiduciaries to Manage Your Plan
Failure to comply with ERISA can result in significant personal liability and penalties, both for the fiduciary and the company who sponsors the plan. This means the personal assets of the fiduciary are at risk in the event of litigation. Since fiduciary lawsuits are expensive to litigate, care should be taken to select the best candidates for the position to minimize the risk.
What is Fiduciary Liability Insurance?
Breach of fiduciary duty and other wrongful acts can lead to expensive lawsuits. The most severe claims tend to involve careless investment of plan funds, especially if the plan has invested heavily in the sponsor employer’s own stock. These claims are often brought as a class action lawsuit.
An employer or plan sponsor can indemnify a fiduciary, but some companies are either not financially able to, or they can’t, due to laws that prevent them from doing so. As a result, the personal assets of a fiduciary are at risk.
No matter the size of your company, having adequate limits of fiduciary liability insurance should be a part of your comprehensive risk management program. A Fiduciary Liability policy covers breaches of fiduciary duties and errors in the administration of the plan, and it protects the personal assets of a plan’s fiduciaries. Most Directors and Officers policies do not cover fiduciary liability issues.
Can you afford to not protect the fiduciaries of your employee benefit plans? Contact Durham and Bates Insurance today for more information on fiduciary liability insurance and ways to mitigate your risk (503-224-5170).
About the Author:
Annie Luna is the Assistant Vice President at Durham and Bates Insurance Brokers and Agents. Durham and Bates has been a partner to Craford Benefit Consultants when our clients are in need of Property and Casualty Insurance services and products. We are happy to work together to provide a full package of insurance needs for our clients.