A fiduciary liability policy safeguards company assets against claims relating to mismanagement or misuse of employee benefit plans. Federal law does not require companies to carry this type of insurance, but you should consider the protection it offers before declining. It covers not only the legal costs of defending against a claim but also the settlement or award amount acquired through a breach of fiduciary duty or errors and omissions.
With the Employee Retirement Income Security Act of 1974, trustees can be held personally liable for mismanaging employee benefits of all types, including 401 (k), pension and health plans. Employers and external vendors are both at risk from losses in the plan, including those suffered by employees due to not receiving information that may have affected their decisions. This is a far-reaching responsibility that ranges from legal claims over poor investments to neglecting to educate employees about medical coverage eligibility.
Oversight of External Providers
Should you purchase a fiduciary liability policy for your business and affected staff members, it does not include any external vendors, consultants or benefits plan managers. They must have their own coverage. Remember that, should you work with a third party to manage such plans, you are not excluded from related liabilities; you are still responsible for oversight of these activities.