Fiduciary liability Insurance, also known as ERISA insurance, has greatly increased in recent months due to the large number of corporate bankruptcies and ‘unfunded liability’ often discovered too late.

Today’s employees do not feel as secure about retirement plans as in the past. Social security benefits are in doubt, and employers are more apt to offer profit sharing plans as vehicles for their employees’ retirement. A corporation’s pension and welfare plans are managed by trustees, or fiduciaries, who must comply with federal ERISA laws.

Although the exposure to ORGANIZATIONS, PLAN SPONSORS AND FIDUCIARIES has existed long before the passage of the 1974 Employee Retirement Act of 1974 (ERISA), it was this act of Congress that substantially increased the potential liabilities of fiduciaries. ERISA clearly established the scope of fiduciary obligations for individuals and corporations who create and manage pension and employee benefit plans. The law states that a fiduciary is all person(s) or entity(ies) that:

-exercises any discretionary control in managing or disposing any of its assets
-any discretionary authority or responsibility in administering the plan(s),
-renders investment advice for compensation

Plans that are fall under ERISA include:

Claims under Fiduciary Liability Insurance often fall into one of the following classifications:

PLAN DISCLOSURES – employees accept certain benefits upon their retirement and later it is discovered that similar benefits have been improved for recent employees. This is especially true after companies’ merger or are acquired.

NEGLIGENCE – as we have seen recently in numerous bankruptcies, the pension plan is unable to make the promised payments due to stock devaluation or other changes that either increase or cause an unfounded liability of the pension plan.

MERGERS AND ACQUISITIONS – companies have in the past taken any over funded plan assets either to make acquisitions or are acquired so the acquiree can make use of any pension funds, then an unforeseen event occurs that turn the same plans into under funded. In addition, acquirers have reduced pension benefits without clearly communicating the changes to its employees. When the employees retire and receive less then the expected pension legal action is brought against the fiduciaries.

IMPRUDENT INVESTMENT – clearly those companies that have a poor distribution of investment in their portfolios have an exposure in a serve loss of value. In addition, investing in stocks that perform poorly due to those companies’ mismanagement increases the exposure to fiduciaries liability.

MISCELLANOUS ERRORS – because ERISA also covers benefit plans any administrative error(s) is an exposure to fiduciaries (including the Human Resource Department).

FIDUCIARY LIABILITY INSURANCE

Fiduciary Liability coverage provides protection for the organization, directors, officers and the employees administering the plans, as well as the employee benefit plans themselves, against a breach of those duties defined under ERISA.

To apply for Fiduciary Liability Insurance the following items are necessary:

– Form 5500s
– Most recent audited financial statements
– Application