The Employee Retirement Income Security Act of 1974 (ERISA) established strict standards of care as related to fiduciary conduct of an employer-sponsored employee benefit plan. Essentially, any “fiduciary” of a company’s employee benefit plan, whether a 401(k) or group medical plan, may be held personally liable to compensate the plan for any losses resulting from a breach of responsibilities, obligations, or duties imposed by ERISA.
A “fiduciary” of an employee benefit plan is often the President, COO, CFO, HR Director, but is any employee or third-party that exercises discretionary authority or control with respect to the management of the plan. Hiring of an outside investment manager or adviser of a 401(k) does not necessarily relieve employee fiduciaries of liability under ERISA. Delegation of fiduciary responsibility still requires prudent selection and proper monitoring.
A Fiduciary Liability insurance policy is designed to cover defense costs, as well as damages or settlements, on behalf of individual fiduciaries of a plan, the plan sponsor (typically the insured organization) and the plan itself, from claims arising from alleged breaches or violations of ERISA. Even if a judgment is found in your favor, the costs to defend an alleged breach of fiduciary obligations are often six figures.