fiduciary liability insurance

Fiduciary liability insurance is an important coverage due to the significant ERISA exposure from pension and welfare benefit plans such as 401Ks.

Fiduciary liability insurance is a separate insurance product for employers which provides protection to the sponsor employer for its fiduciary liability for pension and welfare plans such as 401K plans. The most significant of the sponsor employers' liability was created under ERISA (the Employee Retirement Income Security Act of 1974).

ERISA is a comprehensive law covering many different aspects of employee benefit plans and is designed to protect the rights of pension and welfare plan participants. One aspect of ERISA is the definition of a fiduciary of a pension and welfare plan. ERISA defines a fiduciary as someone with discretionary authority over the plan and its assets, which includes the sponsor employer and the officers, directors and some employees. Outside services providers, such as investment managers and plan administrators, are also fiduciaries. Each fiduciary can be held liable for claims, including claims for acts of other fiduciaries.

Fiduciaries, such as investment advisors, pension consulting firms and the employers themselves, must discharge all duties solely in the best interests of participants and beneficiaries. ERISA was designed to assure that those entitled to pensions and benefits will be able to collect them. ERISA also creates personal liability for fiduciaries, including employees involved in administering an employer's ERISA plan.

Coverage & Underwriting

Fiduciary liability insurance provides protection to the sponsor employer and its officers, directors and employees from their liability exposures arising from ERISA and the common and statutory law. It does not typically provide protection to outside service providers. Fiduciary liability policies respond to breach of fiduciary duties specified by ERISA, such as engaging in prohibited transactions and failure to diversify investments or minimize risk. The definition of prohibited transactions can be broad, and includes self-dealing and conflicts of interest.

Fiduciary liability insurance is available from a wide range of insurers as both a stand-alone product and as an add-on to D&O coverage.

Coverage is typically provided on a claims-made basis. Limits and deductibles vary with the size and type of insured. Standard limits for most small to medium sized organizations start at $1.0 million.

This coverage is rated primarily on the size of the plans being covered. Typically this coverage is inexpensive, with minimum premiums of around $1,500 the norm. Limits are also based on the size of the plans being covered and run a wide range, from low limits for small plans to very large limits for the largest sponsor employers.

Other coverages that might apply to ERISA exposures:

Employee Benefits Liability. This type of insurance typically covers only administrative errors pertaining to pension and benefit plans. Examples include errors in enrollment, cancellation errors and miscalculation of benefit amounts.

ERISA Bonds. While the purchase of fiduciary and employee benefit coverages are optional to employers, all fiduciaries and persons handling plan funds or assets must be bonded. ERISA bonds apply to fidelity and dishonesty situations such as illegal appropriation of funds. It is the sponsor employers' responsibility to make sure fiduciaries are bonded.

In addition, a third party service providers' professional liability coverage might protect the sponsor employer, but only if the coverage is in place and the third party service provider contributed to the claim.

Fiduciary liability insurance is not a large premium item, but is an important coverage for each employer with employee benefit plans. There may be an opportunity to provide other coverage if it is not in place.

In addition to providing fiduciary liability, employee benefits liability or ERISA bonds, there is an opportunity to place professional liability coverage and bonds for the professional organizations providing pension and 401K services to the sponsor employer if they don't already have it. These third party service providers might include investment advisors, pension consultants and benefit administrators. Note that investment advisors are required to carry ERISA bonds for pension assets under management.

What do we need?  A thorough submission is necessary to get the job done.  In addition to the application, the submission should include a clear description of the activities and five years of loss history. We would recommend a conversation with a Tennant broker prior to starting the process. 

Tennant Risk Services Insurance Agency LLC ("Tennant" or "Tennant Risk Services") provides fiduciary and professional liability coverage for a wide range of accounts. We also provide ERISA bonds for service providers such as investment advisors. Please let us know your client's needs and we will provide you with information and assistance with your particular situation or account.  Our goal is to provide the best combination of product, price and service to you.  We will handle your accounts knowledgeably and efficiently, in turn saving you valuable time and money.  Please let us know if we can be helpful in any way.

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Tennant Risk Services
124 LaSalle Road
West Hartford, CT 06107
Phone: (860) 519-1301
Fax: (860) 216-5845

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