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Understanding Fiduciary Liability Insurance and ERISA

Understanding Fiduciary Liability Insurance and ERISA

Understanding Fiduciary Liability Insurance and ERISAThere is often a lot of confusion regarding the insurance needs of fiduciaries and retirement plan officials and whether an Employee Retirement Income Security Act (ERISA) bond is the same thing as Fiduciary Liability insurance. ERISA bonds and Fiduciary Liability Insurance have similar goals, but are not the same. This article aims to better explain the differences of both, and clear up any misunderstandings.

Fiduciary liability insurance, sometimes called management liability insurance, protects the assets of businesses and employers against fiduciary-related claims regarding mismanagement of employee benefit plans.

An ERISA bond, or fidelity bond is a type of insurance that protects the plan against losses caused by acts of fraud or dishonesty, which includes, but is not limited to, larceny, theft, embezzlement, forgery, misappropriation, wrongful abstraction, wrongful conversion and willful misapplication.

Fidelity Bond vs. Fiduciary Liability

The Employee Retirement Income Security Act (ERISA) was passed in an attempt to help protect the interests of pension and employee benefit plan beneficiaries. The act substantially increased the liabilities of fiduciaries in the United States and better defined some of their responsibilities and associated liabilities. Under ERISA, an individual or organization that “handles funds or other property” of an employee benefit plan is considered a fiduciary and therefore required to be bonded unless covered under an exemption.

The fidelity bond required under ERISA specifically insures against losses due to fraud or dishonesty on the part of the person or organization considered to be the fiduciary. Fiduciary liability insurance, however, insures fiduciaries against losses caused by breaches of fiduciary responsibilities.

Common Fiduciary Liability and ERISA Misconceptions

  • Fiduciary liability insurance does not cover fraudulent acts and does not satisfy ERISA bonding requirements. If a fiduciary deliberately commits fraud or theft, those acts would be covered under an ERISA fidelity bond. Fiduciary liability insurance generally provides the insured with liability coverage if the insured is charged with failing to act prudently within the meaning of ERISA, such as through acts of negligence, poor oversight and other breaches of fiduciary responsibility.
  • Directors & Officers (D&O) insurance policies typically exclude fiduciary liability exposures. D&O insurance does not provide coverage for dishonesty, fraud or deliberate criminal or malicious acts, and often includes language that specifically excludes ERISA-related claims.
  • Employee benefit liability (EBL) insurance does cover some benefit plan administration E&O claims, but not all. EBL insurance coverage often includes E&O such as failure to enroll an employee in the plan or administration of improper advice relating to benefits. However, it does not cover all situations of fiduciary responsibility, especially those regarding negligence or deliberate acts.

In summary, if your business offers any kind of benefits to employees like retirement, health or other employee welfare plans, it’s crucial to ensure that all fiduciary liability is properly covered. Axis Insurance Services employs knowledgeable and industry-savvy professionals that can help customize an affordable policy to cover all of your bases.

About Axis Insurance Services

Axis Insurance Services specializes in providing employers with EPLI coverage and would be happy to discuss this must-have protection with you, particularly critical in today’s litigious environment. Just give us a call at (201) 847-9175.

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Blogged on: May 3, 2018 by Mike Smith
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