Fiduciary Liability Insurance

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These executive summaries were compiled from EMPLOYEE BENEFITS INFOSOURCE database, a source for information on employee benefits and human resources.

Best Practices in Fiduciary Risk Mitigation.
Kjar, Steven P.; Benefits Magazine; v49 no2 pp 42-46 Feb 2012; journal article

Availability : International Foundation of Employee Benefit Plans
Abstract : Fiduciary risk management is important for all plan sponsors, as legal cases show that fiduciary breaches can create significant liability. Common risks include lack of a properly reviewed investment policy statement (IPS), lack of plan governance, inaction when issues are discovered and failure to make timely contributions. Sponsors can mitigate these risks by getting expert help for nonexperts, creating a retirement plan committee to take responsibility for the plan, writing an IPS, and knowing the plan as well as its contracts, services, expenses and revenues. Fiduciaries should make sure they know their responsibilities, know their cofiduciaries, keep the plan following a documented process and get proper fiduciary insurance and bonding.
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Murky Waters: Clearing Confusion About Fiduciary Bonds, Insurance and Indemnification.
Steinhart, Bridget L.; Benefits Quarterly; v28 no1 pp 38-40 1st Qtr 2012; journal article

Availability : International Foundation of Employee Benefit Plans
Abstract : Considerable confusion exists over fiduciaries' financial exposure and what protections are available. Pension fiduciaries feel more comfortable about their positions and jobs when they know they are insured and indemnified. Fidelity bonds cover fraud and theft, employee benefits liability and administrative liability insurance covers recordkeeping errors and omissions, and directors and officers insurance covers legal fees and settlements from fraud or misuse of funds by those individuals. None of these cover fiduciary breaches, which require specific fiduciary liability insurance. Indemnification coverage protects fiduciaries from additional legal action by the organization and can pay extra legal expenses. Knowledge of and compliance with plan fiduciary governance requirements helps avoid most troubles.
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Insurance: Insurance Policy Doesn't Cover Plan Sponsor for Administrator's Misconduct, Court Rules.
Mendoza-Ben-Yosef, Agnes; BNA's Pension & Benefits Reporter; v38 p 2364 Dec 20, 2011; journal article

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Abstract : In the case of Guyan International Inc. v. Travelers Casualty and Surety Co., the plaintiff's third-party health plan administrator misused plan funds to pay for its own operational expenses. The plaintiff sought to collect damages from two insurance policies for over $500,000 in lost assets. The two insurers denied coverage, stating the fiduciary liability protection policies specifically excluded collection of employee benefit losses. The District Court for the Southern District of West Virginia upheld their decisions, granting their motion for summary judgment.
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"Safe" Hows.
Reish, Fred; PLANSPONSOR; v19 no7 p 56 Oct 2011; journal article

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Abstract : ERISA permits plan sponsors to use 3(38) investment managers to choose and actively manage investments in a 401(k) plan, while the sponsor enjoys safe harbor from fiduciary liability if it demonstrates prudence in selecting and monitoring the manager. A 3(38) manager must be a registered investment adviser, bank or insurance company and acknowledge its fiduciary status in writing. The sponsor must follow DOL guidance for assessing the manager's qualifications. Fees must be reasonable, there must be no conflicts of interest and sponsors must research any past discipline by the Securities and Exchange Commission. The 3(38) candidate must provide written evidence of following approved processes in investment decision making and present sufficient fiduciary liability insurance.
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Protecting Public Pension Funds From Divestment-Related Lawsuits: Exploring the State Laws of the United States.
Ghahramani, Salar; Pensions; v16 no3 pp 212-219 Aug 2011; journal article

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Abstract : Many states mandate that their public funds divest from companies doing business with one or more countries defined as state sponsors of terrorism by the State Department. The designated countries are Cuba, Iran, Sudan and Syria, as of mid-2011. While many of these states offer indemnification for fiduciaries making such divestments, many do not. Since public fund fiduciaries are not covered by ERISA, they may be subject to lawsuits claiming the divestment violates their fiduciary duties. Ideally, all states should indemnify fiduciaries from the state's general fund for state-mandated divestments.
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A New Burden Falls on Employers.
Berg, Joel; Risk & Insurance; v22 no2 pp 44, 46 Mar 2011; journal article

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Abstract : Faced with the responsibility for managing their own investments for retirement and their health care funds, employees have shown through litigation that they will not accept shrinking assets without question. Employees are scrutinizing investment performance for 401(k) plans, any plans with employer stock as well as a new focus, health savings accounts not protected by the Federal Deposit Insurance Corporation. Employers should be aware of the broadening range of liability sources and proactively communicate fees, risks and risk management to pension and health plan participants. Plan participants who understand the costs and risks are less likely to take legal action if assets fall due to poor investment performance.
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The Handbook of Employee Benefits: Health and Group Benefits.
Rosenbloom, Jerry S., ed.; 977 pp 2011 7th ed.; book

Availability : International Foundation of Employee Benefit Plans
Abstract : Broad-based discussion of employee benefits covering: health benefits, life insurance, work/life programs, social insurance programs, employee benefit design and administration and more. Includes recommendations for designing and implementing employee-friendly benefit programs in line with the realities of a cost-conscious business environment. Offers a historical perspective on a specific types of benefit followed by an overview of benefit options and a discussion of current challenges facing benefit providers. Also covers topics such as retiree welfare benefits, multiemployer plans, benefits for small companires and international benefit planning.
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Fiduciary Oversight: Strategy and Tactics.
Boucher, David P.; Benefits & Compensation Digest; v47 no11 pp 36-38 Nov 2010; journal article

Availability : International Foundation of Employee Benefit Plans
Abstract : The primary responsibility for fiduciaries with defined contribution pension plans is to serve plan members' interests above all else. This includes keeping fees reasonable, a point reinforced by the DOL's anticipated disclosure rules. Plan sponsors should follow all best practices such as establishing a plan investment committee with bylaws and clear roles and responsibilities, creating an investment policy statement and diligently documenting all meetings, decisions and actions. Plan directors and officers should also protect themselves through fiduciary liability insurance.
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Special Interdisciplinary Advisory Committee on Fiduciary Issues: Insuring ESOP Fiduciaries.
Becker, Theodore M.; ESOP Report; pp 9-11 Oct 2010; journal article

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Abstract : When preparing to buy or renew insurance for employee stock ownership plan (ESOP) fiduciaries, it is important to insist on an explicit fiduciary liability plan. The plan should cover present, past and future ESOP fiduciaries against claims by a variety of litigants including the DOL and IRS. It should address breaches of ERISA fiduciary duty and other errors and omissions, and it should specifically cover nonindemnifiable loss. Purchasers should avoid policies that give the insurer a right of recourse and subrogation against the fiduciary and should attend closely to pending and prior litigation dates. Application forms must be completed thoroughly and accurately. Policies with separate or additional defense costs and the highest affordable coverage and lowest deductible are preferable.
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Fiduciary Responsibility: Report on Fiduciary Risks Under ERISA Examines Value, Limits of Fiduciary Insurance.
BNA's Pension & Benefits Reporter; v37 p 1811 Aug 17, 2010; journal article

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Abstract : According to a report by the Chubb Group of Insurance Cos. and law firm Morgan, Lewis & Bockius, fiduciary liability insurance cannot restore losses due to error, but many carriers offer supplemental insurance that covers fines, fees and penalties due to voluntary compliance efforts. In most cases, according to the report's authors, fiduciary liability insurance coverage is usually triggered by claims against the insured parties, including written demands for relief, civil complaints or notice of formal charges. Fiduciary liability insurance can cover a number of entities, such as plans, plan sponsors, officers or employees of the sponsoring company and benefit and investment committees. Most fiduciary liability policies are designed for single employer plans, but some cover multiemployer plans.
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Trends in Fiduciary Liability Coverage.
Slevin, Barry S.; Benefits & Compensation Digest; v47 no5 pp 16-22 May 2010; journal article

Availability : International Foundation of Employee Benefit Plans
Abstract : Plan fiduciaries' response to ERISA fiduciary responsibility mandates should start with knowledge and involve both prevention and liability insurance. Apart from prudent action, fiduciaries can avoid liability by formally delegating certain duties and obtaining indemnification agreements from the appointed party. Service provider contracts should have sufficient financial security to satisfy a claim and usually indemnify the plan. Fiduciary liability insurance covers fiduciaries for a breach of fiduciary responsibility and plan administrative errors. Fidelity bonds cover fiduciaries and others for losses resulting from fraud and other criminal acts. Insurance should also be considered to cover specific legal mandates for plan operational details such as data security.
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Attorneys Offer Strategies to Reduce Risk That They Will Become ERISA Fiduciaries.
Maresca, Meredith Z.; BNA's Pension & Benefits Reporter; v37 p 537 Mar 9, 2010; journal article

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Abstract : There are rare situations that can confer ERISA fiduciary status on an attorney. An attorney's typical professional functions are not viewed as fiduciary activities. However, exercising discretionary control over plan management or assets or giving plan asset investment advice for any compensation, intentionally or de facto, becomes fiduciary action. An attorney can also be liable as a nonfiduciary party in interest, participating in an actual fiduciary's breach of responsibility. Attorneys should limit their fiduciary risk by advising the client to identify actual fiduciaries in writing and then dealing directly with those named fiduciaries, avoiding handling any assets and having coverage through malpractice liability insurance.
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Pension Plan Fiduciaries Changing Procedures in Response to Increased Threats.
Brandolph, David B.; BNA's Pension & Benefits Reporter; v37 p 532 Mar 9, 2010; journal article

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Abstract : BNA and Hewitt Associates report pension plan fiduciaries are taking steps to limit legal liability and government actions that could threaten their plans. Survey respondents noted rising litigation over employer stock in retirement plans and service provider fees, greater pressure by the DOL for reporting, disclosure and participant notifications and participants' dwindling plan accounts. In response, plan fiduciaries are focusing on plan costs and investment options, increasing reliance on liability driven investing and focusing on policies regarding employer stock. They are also scrutinizing plan documents and information released to employees, shifting plan fiduciary functions to committees and intensifying protection through fiduciary liability insurance.
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Evaluating Retirement Plan Advisors.
Chiricotti, Phillip G.; Defined Contribution Insights; v58 no2 pp 10-11 Mar-Apr 2010; journal article

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Abstract : Many plans, especially small plans, do not have advisors or use advisors with only general knowledge. Plan sponsors and advisors are often unaware of their liability under ERISA's high standards. Retirement plan experts understand and accept their fiduciary role, despite usually not being a named fiduciary. Sponsors seeking a qualified plan advisor should have fiduciary liability insurance and sufficient errors and omission insurance, demand fiduciary coverage from a candidate advisor and avoid indemnifying an outside advisor. The goals and process for evaluating advisors should be documented, standardized and followed. Educational and supervision requirements and state licensing for Registered Independent Advisors are spotty and inconsistent, putting the onus on the plan sponsor to use due diligence in selecting.
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Real World Benefits: How the Real World Is Impacting Fiduciary Committees.
Costello, Brian; Journal of Compensation and Benefits; v26 no1 pp 49-51 Jan-Feb 2010; journal article

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Abstract : Fiduciary committees should understand that when a third party administrator (TPA) offers investment advice it can incur fiduciary liability. Committees should understand that many TPAs are crossing the line between investment education and investment advice in one-on-one meetings with participants. Attorney Saswati Paul provides seven best practices for fiduciary committees: Separate settlor functions from fiduciary functions of the committee, keep top tier officers off the committee, appoint competent people who can provide needed services, avoid having de facto fiduciaries interpret plan documents for participants, limit committee members' access to nonpublic information, hire an independent consultant to advise the plan committee and purchase adequate fiduciary liability insurance. Although Ms. Paul also recommends selecting TPAs through a request for proposal process, this is so difficult in practice that it rarely occurs properly.
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Enforcement: IRS Audit Projects Find Most Common Error Is Inadequate Fiduciary Bonding Insurance.
BNA's Pension & Benefits Reporter; v36 p 2908 Dec 29, 2009; journal article

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Abstract : The learn, educate, self correct and enforce efforts of the IRS have revealed common failures among small defined contribution pension plans. ERISA Title I Section 412 requires that plans purchase bond sufficient coverage for fiduciaries and administrators handling assets. Other top errors include failure to update plan documents and procedures to comply with evolving regulations, failure to deposit elective deferrals in a timely way and failure to test correctly for nondiscrimination. Among the smallest plans audited, about half had compliance problems.
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Controlling Interests.
Litner, Paul; Benefits Canada; v33 no11 p 61 Nov 2009; journal article

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Abstract : Canadian law states that when an employer acts as pension plan administrator it becomes a plan fiduciary, but only for functions related to the employer's administrative duties. In 2008, the case of Lloyd v. Imperial Oil Ltd. reaffirmed a precedent more than a decade old that an employer exercising its power of amendment does not have a fiduciary duty to plan members. In situations where the distinction between employer and administrator functions is unclear, such as pension plan funding, courts sometimes rule in favor of employers, sometimes against. Employers can protect from liability by clearly distinguishing between employer and administrator functions and ensuring that insurance and indemnities apply to officers operating in a fiduciary capacity.
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The Practical Side of Being a Fiduciary.
Kalish, Jerry; Employee Benefit News; v23 no10 p 44 Aug 2009; journal article

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Abstract : Any persons involved with an ERISA plan should double check to see if they are a fiduciary. Those who are should do a several things to effectively manage their responsibility. Formally appointing a plan administrator is mandatory under ERISA. The selection of service providers is a fiduciary duty, and especially in times of economic crisis the financial strength of those service providers must be considered. Fiduciaries must also ensure that they have properly delegated investment responsibility. Fiduciary liability insurance provisions must be considered carefully, and it should be noted that fiduciaries cannot be indemnified from their fiduciary responsibilities. Fiduciaries should be prepared for audits from the IRS and the DOL.
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Reviewing Your Fidelity Bond: What You Need to Know.
Kaleda, David C.; ASPPA Journal; v39 no3 pp 6-9 Summer 2009; journal article

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Abstract : Various financial scandals reinforce the importance for benefit plan officials to be bonded in compliance with ERISA Section 412. The regulation applies to anyone who handles funds or property for a Title I funded plan. The bond must come from an approved surety company, meet minimum monetary amounts and protect against loss by fraud or dishonesty even if no crime is involved. Fiduciaries should not assume existing liability, directors and officers, or other insurance policies cover this need. They should review their bond status annually to ensure requirements are met.
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Shield Appeal.
Bickerton, Rob; Benefits Canada; v33 no4 p 47 Apr 2009; journal article

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Abstract : Providing employees with benefits exposes employers to certain risks. Fiduciary liability insurance can protect employers from pension and benefits claims. A fiduciary liability plan is particularly useful if the employer has discretion in the oversight of benefits. Typically, an employer applying for fiduciary liability coverage must present the organization's latest audited financial statements, details on the age of the plan, a three-year summary of plan assets, contribution and membership and information on all of the plan's service providers.
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Fiduciary Responsibility: Fiduciaries Should Ensure They Recognize, Document Red Flags, Speaker Recommends.
Ben-Yosef, Andrea L.; BNA's Pension & Benefits Reporter; v36 p 676 Mar 24, 2009; journal article

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Abstract : Speakers at an American Law Institute-American Bar Association teleconference stressed that plan leadership should have established procedures for decision making, asset valuation and changing investments as the market dictates. Every action must be documented. Ideally, a plan has separate specific fiduciaries for investment, administration and benefit appeals, as well as fiduciary liability insurance and bonding and indemnity through the corporation and the plan. The economic crisis should make plans especially aware of liability to litigation.
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ERISA Facts 2009.
Bitzer, Frank J.; Ferrigno, Nicholas W., Jr.; 849 pp 2009 2009 ed.; book

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Abstract : Provides answers with legal source citations for more than 800 questions concerning ERISA compliance, health insurance (COBRA, HIPAA, etc.) and other labor issues related to employee benefits. Includes information on a variety of related employee benefit plan matters such as administrative requirements, disclosure provisions, and fiduciary duties.
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Merging Multiemployer Health and Welfare Funds: A Practical Guide.
Whitehead, Mitchel D.; Grove, Carrie J.; Waddles, Nicholas J.; Benefits & Compensation Digest; v45 no12 pp 28-33 Dec 2008; journal article

Availability : International Foundation of Employee Benefit Plans
Abstract : Although multiemployer pension plan mergers are heavily regulated by the Employee Retirement Income Security Act (ERISA), there is almost no ERISA regulation of multiemployer health and welfare fund mergers, and very little published guidance on the topic. These mergers are difficult and time-consuming, and require careful attention from trustees of the affected plans. There are legal and practical issues that should be considered by the trustees and the appropriate plan professionals.
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Matching Protection With Need.
Gelburd, Jeffrey S.; ESOP Report Magazine; pp 47-48 Jun-Jul 2008; journal article

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Abstract : Many employee stock ownership plans (ESOPs) are unsure about how much liability protection they need, whether liability for executives, directors and officers, employment practices or fiduciary actions. A 2008 survey of ESOPs sorted by plan assets indicates that, among those with between $1 million and $10 million in assets, the average limit of liability purchased was $2,100,000. Those with between $10 million and $50 million average $2,400,000. Those with over $50 million in assets average $3,800,000 with a median of $4,000,000. In determining the need for liability limits, ESOPs should consider the age of the plan, percent of ownership, availability of other retirement plan options and the need to cover defense costs.
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Retiree Benefits: Court Says Insurer Not Required to Indemnify Arthur Andersen for Settlement With Retirees.
Maresca, Meredith Z.; Daily Labor Report; no69 p A3 Apr 10, 2008; journal article

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Abstract : In Federal Insurance Co v. Arthur Andersen LLP, the Seventh Circuit Appeals Court upheld a lower court ruling that a fiduciary liability insurer was not required to provide coverage for a $168 million settlement. The settlement had been reached between Arthur Andersen with its retirees who were suing for lump sum pension distributions, unwilling to settle for monthly payments when the employer faced financial instability following the Enron Corp. collapse. The appellate court ruled that the liability insurance policy only covered losses due to negligence or breach of fiduciary duty. The settlement was the result of breach of contract and so not covered by the insurance policy.
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