What does Fiduciary Liability Insurance provide?

This coverage protects plan sponsors and trustees from the defense and penalties if they are sued for fiduciary decisions they make for an employee benefit plan. Plan fiduciaries are open to many types of lawsuits. Plan participants may sue individually or as a class if they feel that benefits were misrepresented or if they believe that different decisions by the trustees could have yielded a higher return. They may even sue over enrollment issues.

Who is considered a fiduciary?

A plan fiduciary is anyone who has discretionary judgment authority for the employee benefit plans. Under ERISA regulations a fiduciary is personally liable for the cost of their own defense if they are sued for their decisions. They are liable for judgments and penalties, too.

Where does it say that fiduciaries are held personally liable?

ERISA is explicit in providing for the personal liability of fiduciaries by stating that fiduciaries cannot be relieved of their responsibilities through indemnification language in corporate bylaws (Section 410(a)).  However, ERISA specifically permits persons with personal liability exposure to purchase liability insurance, if desired (Section 410(b)).

Is Fiduciary Liability Insurance mandatory under ERISA?

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?

What are typical defense costs in a fiduciary lawsuit?

According to a Fiduciary Liability Insurance Survey performed by the global actuarial consultants Tillinghast – Towers Perrin, the average per claim defense cost hovered around $365,000 in 2003. Penalties during the same period neared $200,000.

Does the ERISA/Fidelity Bond cover lawsuit costs?

No. As stated above, the ERISA/Fidelity bond protects the plan assets, not the fiduciaries.

How is Fiduciary Liability Insurance provided by Colonial Surety Company?

Colonial Surety Company offers Fiduciary Liability Insurance as an endorsement to our ERISA/Fidelity bonds for qualified plan assets only. The minimum policy is $100,000 coverage for up to two trustees. Additional coverage is available up to $500,000 for unlimited trustees. The endorsement is purchased on this website.