If your company offers employee benefits, then you most likely have a department of people that oversees them. But did you know that if one of them makes a mistake your company could be held liable?
Employee benefit plans are generally very complex and mistakes can be made at any time, even if you have an entire team working on them. If the person responsible (that is, the fiduciary) does not follow the benefits plan exactly as it is laid out, they could be sued.
Fiduciary liability insurance protects businesses like yours from costly claims of mishandled employee benefits, like 401(k)s, pensions, and healthcare.
Errors and omissions in administering benefits
Imprudent selection of investments or third-party service providers
Automatic coverage for most newly created or acquired plans
Criminal activity or illegal acts, like embezzlement
Outside advisors, consultants, or administrators hired to manage the benefit plans
Failure to fund the plan in accordance with the Employee Retirement Income Security Act (ERISA)
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Fiduciary Liability coverage can be added to other policies, but it is most commonly tied to coverages such as directors and officers insurance and employment practices liability insurance.
If your business is a very small one that doesn’t have benefits packages to offer employees, then you probably do not need a fiduciary policy. However, as soon as you start providing any type of employee benefits, you will want to look into fiduciary liability insurance.
As with all insurance, it’s always advised to take the “better safe than sorry approach,” considering that the paperwork and processes for employee benefits are often quite complicated. Even if your company is really careful about it, mistakes can happen.
If you’re offering medical, dental, vision, health insurance, or 401(k) and 403(b) retirement plans, and even something like a stock option plan (which can lead to your company being sued if there are any issues found with stock prices, as was the case with Yelp), you should consider fiduciary liability coverage.
The cost of your plan will largely depend on the type of coverage your business needs and the size of your company and its assets. However, Fiduciary Liability insurance is usually a fairly affordable product.
Some of the most common factors that impact fiduciary liability premiums include:
Generally, policies can range from $500 to $2,500 per year, depending on the specific needs of your company. Policies can cover as much as $20 million per year.
The scope of fiduciary liability insurance has broadened over the years as claims activity has increased. Although insurance provides the protection your business needs, it’s still a good idea to explore your options in order to find the best rate possible.
Explore real-world scenarios of how this coverage has supported businesses
Wells Fargo faced a lawsuit claiming that it funneled more than $3 billion of employee retirement savings into expensive, underperforming proprietary mutual funds to enrich itself. The employees accused the company in a breach of fiduciary duties to all 401(k) participants over a period of six years.
Trinity Health hospital paid $107 million to settle a pension mismanagement lawsuit filed by a group of workers who accused the hospital of improperly classifying its pension plans, which resulted in the pension being underfunded by $139 million.
A lawsuit was filed against Fidelity Investments and its parent company, FMR, accused the company's 401(k) plan fiduciaries of self-dealing, among other things.
Merrill Lynch is still dealing with the fallout of a class action lawsuit that alleged that the firm breached its fiduciary duties by charging excessive 401(k) fees. The company has already paid $79 million and is now facing another $25 million settlement.
