Fiduciary Liability protects fiduciaries (as defined by ERISA) against loss (damages and defense cost) arising from the administration and management of employee benefit and pension plans. If your company sponsors a retirement or health plan for employees and if you are involved with the management of that plan, you are likely considered a “Fiduciary” and can be held personally liable for what happens to the plan (under ERISA law). Common claims allege ERISA violations, negligent advice, and careless plan management. Since most standard E&O and D&O policies exclude claims for ERISA violations, you cannot rely on these policies for protection in the case of litigation against you or your company.
In 1974, Congress passed ERISA (Employee Retirement Income Security Act), the federal law governing employment benefits. ERISA sets minimum standards and legal guidelines for most voluntarily established pension and health plans in private industry. Under ERISA, a fiduciary can be held personally liable for losses to a benefit plan incurred as a result of alleged errors, omissions, or breach of their fiduciary duties. Fiduciaries face a complex regulatory environment, new requirements under the Pension Protection Act, evolving case law and increasingly complicated investment decisions. Past or present employees or their families bring most fiduciary claims. However, the Department of Labor (DOL) who enforces the provisions of ERISA may also bring claims, which can also lead to civil penalties. You’ve worked too hard and sacrificed so much to build a successful business. Don’t let the actions of others put your business at financial risk.
A private company sponsored a 401(k) plan with a company match for its employees. The company contracted with an outside investment advisor to manage the plan. Certain employees talked about how well they were doing in the plan, especially those who invested in the risky technology-based mutual fund. When a longtime employee overheard other employees, including the Human Resources manager, talking about their great return, he decided to move most of his 401(k) plan money into the same fund. The employee was one year from retirement when the value of his plan dropped nearly 40% over a 12-month period. The employee sued his employer and, as a trustee of the plan, the Human Resources manager, alleging misleading statements and violation of fiduciary duty in regards to the 401(k) plan. After a lengthy trial, the employer was found liable, and the Human Resources manager was found to have made misleading statements as a trustee of the plan.
Six retired employees of a consulting firm sued the company, alleging entitlement to early retirement benefits. The retired employees (plaintiffs) alleged they relied on oral and written representations of the plan administrator, an employee in the human resources department. The plan document was alleged to be ambiguous, preventing a successful motion for summary judgment. The insurance carrier provided defense to its insured and paid $150,000 in resolving the dispute.
An employee enrolled in the long-term disability plan filed suit against a clothing store, alleging violations of ERISA, the Americans with Disabilities Act, and Title VII. Specifically, the employee (plaintiff) alleged the employer had wrongfully terminated her due to disability. The insurance carrier afforded a defense. At trial, it was determined that the plaintiff was entitled to long-term disability benefits and that the employer had breached its duty in failing to fully consider all of the medical information. The case was appealed and was settled prior to a decision. In addition to significant defense costs of $300,000, the insurance carrier agreed to pay the plaintiff’s attorney fees in the amount of $250,000.
To learn more about our Fiduciary Liability insurance products, speak with one of our experienced professionals today.