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Tip #3: Fiduciary Liability & Employment Practices (EPL)…

Valuable protection your business can’t do without.

“I don’t sponsor a pension plan—just an employee-directed 401(k) plan—so I don’t need Fiduciary Liability Insurance, right?”

You’ve worked too hard and sacrificed so much to build a successful business, so don’t let the actions of others put your business at financial risk. As a trustee of any welfare or benefit plan for your employees, you can’t be held personally liable for your actions or inactions in regard to those plans.

About ERISA
In 1974, Congress passed ERISA, the federal law governing employment benefits. ERISA sets minimum standards and legal guidelines for most voluntarily established pension and health plans in private industry. As a means to provide protection for participants in these plans, ERISA:

  • Requires plans to provide participants with important information about plan features and funding.
  • Provides fiduciary responsibilities for those who manage and control plan assets.
  • Requires plans to establish a grievance and appeals process for participants to obtain benefits from their plans.
  • Gives participants the right to sue for benefits and breaches of fiduciary duty.

Why is it necessary to carry fiduciary liability insurance? As a fiduciary, your personal assets are at stake!

  • Fiduciary Liability Insurance is not required by ERISA. However, it is strongly recommended for those individuals with fiduciary responsibilities, because their personal assets are at stake.
  • Under the Employee Retirement Income Security Act of 1974 (ERISA), fiduciaries may be held personally liable for breach of their responsibilities in the administration and handling of employee benefit plans. Plan fiduciaries must abide by the “Prudent Man Standard of Care,” whereby decisions made with regard to an employee benefit plan must be made solely in the interest of the participants and beneficiaries of those plans.
  • ERISA applies to any plan, fund or program established or maintained by an employer or employee organization to provide pension or welfare benefits to its participants/beneficiaries.

Claim Examples
Here are examples of the types of Fiduciary Liability claims that can be brought against midsize companies:

  • Allegations that the conversion to cash-balance plans is discriminatory based on age, denying older workers their benefits
  • Allegations of mismanagement as a result of a merger or acquisition
  • Claims arising from mergers or acquisitions, especially when employees see plans being changed or terminated, or when benefits are being reduced
  • Errors and Omissions claims, alleging miscalculation of benefits during early retirement offerings
  • Failure to adequately educate participants about the risks involved in investing in stocks.

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