Fiduciary liability insurance covers a company in the event of a lawsuit related to errors or otherwise failing to act in covered employees’ best interest while administering employee benefit plans. This includes health plans, life and disability plans, retirement plans such as 401(k)s, and other financial benefit plans a company may offer.
A fiduciary is supposed to work solely for the benefit of their client. They should choose plans based on what would best benefit the client, not what would pay them the biggest commission. And they must take great care to ensure to avoid errors in benefits administration.
For retirement and other types of savings plans, businesses can expose themselves to risk of a lawsuit claiming breach of fiduciary duty in several ways, including:
- Poor investment management
- Charging excessive or unnecessary administration fees
- Having a conflict of interest, such as choosing an administrator or investments based on broker commission
When it comes to administering other employee benefit plans, a business could incur a lawsuit by:
- Not communicating plan details to covered employees
- Failing to enroll an eligible employee who has elected coverage
- Improperly terminating eligible employees from a plan
- Not complying with carrier requests regarding claims
Fiduciary liability insurance covers the named business and any employees named in benefit plan documents if they were to be sued individually. Anyone in the organization who makes decisions about benefit plans could be named in a breach of fiduciary responsibility lawsuit and needs this coverage. The business and its employees could also be held liable for errors by an outside provider, such as an insurance broker, though their insurance policy would not cover the third party itself.
Fiduciary responsibility means plan sponsors and plan administrators must act in the best interests of employees covered by the plans. Take care to administer all benefit plans carefully. Consult your employee benefits broker about how to use any carrier portals you have access to, and don’t be afraid to ask questions or request training if you need it. If you’re using an online benefits administration system, check it religiously to get all updates. And vet your retirement savings provider thoroughly to avoid conflicts of interest.
Despite your best efforts, benefits administration errors can slip through, so fiduciary liability insurance is a useful coverage to have. Contact the experienced commercial lines advisors at Kamm Insurance Group to discuss this coverage, and our employee benefits advisors will do everything they can to help you avoid these errors in the first place.