With the increasing spotlight on fiduciaries and their responsibilities for ERISA plans, many employers are asking themselves whether it’s time to buy fiduciary liability insurance.

With personal assets on the line for breach of fiduciary responsibility, there is no “one size fits all” answer. But, if you are a fiduciary considering fiduciary liability insurance, here are four misconceptions that can get in the way of proper decision making:

  1. The ERISA Fidelity bond protects my personal assets. Not at all. Fidelity bonds which are required by ERISA provide coverage for acts of fraud or dishonesty but only for the benefit of the plan and the plan’s participants. It does not protect the fiduciaries themselves for liability claims.
  2. I’m covered under our Employee Benefit Liability (EBL) policy. Not entirely. EBL insurance policies cover many claims arising out of errors or omissions in the administration of a benefit plan, but may not cover other aspects of fiduciary liability, e.g., investment of plan assets.
  3. I’m covered under our Directors and Officers (D&O) policy. Usually not. These types of policies generally only cover directors and officers for their activities in that capacity and not as plan fiduciaries. They generally exclude coverage based on violations of ERISA.
  4. I would be indemnified against any personal liability. Maybe yes, maybe no. ERISA specifically precludes a plan from indemnifying a fiduciary for breach of fiduciary responsibility. So who’s left? The employer who even if willing, may not have the financial resource to indemnify or may be restricted to do so by state law.

Fiduciary liability insurance can not, of course prevent law suits. But in conjunction with sound plan management, it can be an effective part of your risk management program. In other words, you can’t eliminate the risk, but you can maximize the protection. Consider talking to your property and casualty broker or consultant about fiduciary liability insurance.