My last post was a year-end ERISA fidelity bond reminder. ERISA does not require liability protection; the only mandatory insurance is an ERISA Fidelity bond to protect the plan assets from losses due to misuse or misappropriation. The ERISA Fidelity bond protects the plan assets. Without fiduciary liability insurance, who protects the fiduciaries?
The new retirement plan environment referred to in the headline includes a recent case unanimously decided by the U.S. Supreme court that has significant implications for plan fiduciaries.
On February 20, 2008 in LaRue v. DeWolff Boberg & Associates, Inc., et al., the Court ruled 9-0 that
Section 502(a)(2) of the Employee Retirement Income Security Act of 1974, as amended (ERISA), does not provide a remedy for individual injuries distinct from plan injuries, but that provision does authorize recovery for fiduciary breaches that impair the value of plan assets in one or more, but not all, participants’ accounts.
In non-legalese, the Court held that individual participants in a defined contribution plan can
sue for a breach of fiduciary duty that results in a loss to the participant’s own account, even if not all participants’ accounts have similar losses.
No one knows, of course, whether we will see an increased in lawsuits against fiduciaries, but many ERISA attorneys predict that LaRue’s victory means that there is likely to be a significant increase in litigation involving 401(k) plans, and that plan fiduciaries may be confronted with a variety of claims brought by plan participants seeking to recover losses to their individual accounts.
In this new environment, we think that fiduciaries should think in risk management terms and consider whether they should purchase fiduciary liability insurance.
This Benefit Briefing will provide you with answers to frequently asked questions (FAQs) to help you decide whether you should purchase fiduciary liability insurance.