Fiduciary Liability Insurance pays, on behalf of the insured, legal liability arising from claims for alleged failure to prudently act within the meaning of the Pension Reform Act of 1974

“Insured” is variously defined as a trust or employee benefit plan, any trustee, officer or employee of the trust or employee benefit plan, employer who is sole sponsor of a plan and any other individual or organization designated as a fiduciary.

If you are a director or officer who makes decisions about your company’s 401(k) plan or other qualified employee benefit plan(s), you are personally liable — personal assets are at risk! Under the ERISA act of 1974 (Employee Retirement Income Security Act), fiduciaries can be held personally liable for losses to a benefit plan incurred as a result of their alleged errors, omissions, or breach of their fiduciary duties. Many fiduciaries believe incorrectly that their ERISA fidelity bond protects their personal assets.

Furthermore, many think that this type of coverage is included in their D&O policy. Most D&O policies exclude fiduciary liability exposures as well as those exposures pertaining to the Employee Retirement Income Security Act (ERISA). Designated fiduciaries are not the only targets of such lawsuits; targets can also include the employer and even the plan itself. Claims can be brought by plan participants, participants’ legal estates, the Department of Labor, and the Pension Benefit Guaranty Corporation. Such claims may include allegations of:

  • Improper advice or disclosure
  • Inappropriate selection of advisors or service providers
  • Imprudent investments
  • Lack of investment diversity
  • Breach of responsibilities or fiduciary duties imposed by ERISA
  • Negligence in the administration of a plan
  • Conflict of interest with regard to investments

Krauter & Company can help a firm mitigate the personal liability of its fiduciaries by consulting on the appropriate risk management strategy and insurance solution.