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.

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

Availability : International Foundation of Employee Benefit Plans
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

Availability : International Foundation of Employee Benefit Plans
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

Availability : International Foundation of Employee Benefit Plans
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

Availability : International Foundation of Employee Benefit Plans
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

Availability : International Foundation of Employee Benefit Plans
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

Availability : International Foundation of Employee Benefit Plans
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

Availability : International Foundation of Employee Benefit Plans
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

Availability : International Foundation of Employee Benefit Plans
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

Availability : International Foundation of Employee Benefit Plans
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

Availability : International Foundation of Employee Benefit Plans
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

Availability :
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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Link To Full Article
Matching Protection With Need.
Gelburd, Jeffrey S.; ESOP Report Magazine; pp 47-48 Jun-Jul 2008; journal article

Availability : International Foundation of Employee Benefit Plans
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

Availability : International Foundation of Employee Benefit Plans
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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Fiduciary Liability Insurance for Trustees: What Are You Missing?
McCreary, Michael C. P.; Clynick, Carrie L.; Canadian Benefits & Compensation Digest; v26 no1 pp 11-13 Feb 2008; journal article

Availability : International Foundation of Employee Benefit Plans
Abstract : Plan trustees need to understand what their fiduciary liability insurance covers. All policies contain conditions that must be fulfilled before, during and after a claim. The average policy also contains nine to 19 exemptions or exclusions including the requirement that any previous or pending claims be disclosed before the policy is purchased. Liability policies will not protect fiduciaries against criminal or fraudulent acts. Trustees must give written notice with particulars as soon as possible concerning a claim. If a claim is injunctive but not monetary, the policy will not cover it, nor will it cover claims of libel, slander, defamation or bodily injury.
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Link To Full Article
ERISA Facts 2008.
Bitzer, Frank J.; Ferrigno, Nicholas W., Jr.; 825 pp 2008 2008 ed.; book

Availability :
Abstract : Discusses the management of ERISA plans and assets. Areas covered include establishing and administrating a plan, health benefit issues, fiduciaries, their duties and fiduciary responsibility, prohibited transactions and exemptions, investments, multiemployer plans, MEWAs, civil compliance and enforcement, and criminal enforcement. Includes information on laws, regulations and court cases.
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Fiduciaries and Their Professional Advisors.
Walters, Don; 204 pp 2008; book

Availability : International Foundation of Employee Benefit Plans
Abstract : Trustees and plan sponsors need advisors to help in the administration and maintenance of employee benefit plans. Explains what disciplines are needed and how to find good advisors. A key skill in the search is not hesitating to ask questions and not hesitating to stay with it until the response is understood. It is the fiduciary's responsibility to make decisions based on good judgment.
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Link To Full Article
Are You in Good Hands? Why Employers Should Carefully Read Their Fiduciary Liability Insurance Policies.
Martin, Craig C.; Scogland, William L.; Employee Relations Law Journal; v33 no3 pp 104-112 Winter 2007; journal article

Availability : International Foundation of Employee Benefit Plans
Abstract : Employee benefit plan fiduciaries can be held personally liable for actions they take on behalf of the plan, even if the issue is never brought to trial. Both ERISA and state laws specify conduct that constitutes breach of fiduciary duty. Fiduciaries can protect themselves by purchasing fiduciary liability insurance, but they must thoroughly understand the policies before buying. Policies should clearly explain the duties of the insurer, including which losses they indemnify and when they will defend the insured. The duty to defend does not imply a duty to indemnify. The policy should also clearly define coverage exclusions, such as losses resulting from fiduciary misconduct.
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Fiduciary Physical.
Saxon, Stephen M.; PLANSPONSOR; v14 no2 p 79 Feb 2007; journal article

Availability : International Foundation of Employee Benefit Plans
Abstract : Just like a physical examination, a regular checkup of a plan's fiduciary governance is a good idea. An audit should cover governance structure and procedures, fiduciary committee membership, individual responsibilities, delegation of authority and plan document details. Processes for selecting investment managers, advisors and other service providers should be documented and followed. All fees paid for services to the plan must be reasonable. Plans may indemnify fiduciaries for losses, writing indemnification into the bylaws, as long as there is not breach of fiduciary responsibilities. Plans should provide all fiduciaries with fiduciary liability insurance.
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ERISA Facts 2007.
Bitzer, Frank J.; Ferrigno, Nicholas W., Jr.; 807 pp 2007 2007 ed.; book

Availability :
Abstract : Discusses the management of ERISA plans and assets. Areas covered include establishing and administrating a plan, health benefit issues, fiduciaries, their duties and fiduciary responsibility, prohibited transactions and exemptions, investments, multiemployer plans, MEWAs, civil compliance and enforcement, and criminal enforcement. Includes information on laws, regulations and court cases.
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