| Under ERISA, fiduciaries may
be held personally liable for breach of their
responsibilities in the administration or handling
of employee benefit plans. Fiduciary Liability
Insurance is not required by ERISA. However,
it is strongly recommended if you are a fiduciary
of a welfare and/or pension plan because your
personal assets are at stake. Many fiduciaries
believe incorrectly that their ERISA fidelity
bond protects their personal assets.
Furthermore, many think that this type of
coverage is included in their D&O policy.
Most D&O policies exclude fiduciary liability
exposures as well as those exposures pertaining
to the Employee Retirement Income Security
Act (ERISA).
ERISA also broadly defines the types of
employee benefit plans for which fiduciaries
are responsible. This extensive list can
include pension plans, profit sharing plans,
employee stock ownership plans (ESOPs), and
even health and welfare plans.
Moreover, designated fiduciaries are not
the only targets of such lawsuits; targets
can also include the employer and even the
plan itself. Claims can be brought by plan
participants, participants’ legal estates,
the Department of Labor, and the Pension
Benefit Guaranty Corporation. Such claims
may include allegations of:
- Improper advice or disclosure
- Inappropriate selection of advisors
or service providers
- Imprudent investments
- Lack of investment diversity
- Breach of responsibilities or fiduciary
duties imposed by ERISA
- Negligence in the administration
of a plan
- Conflict of interest with regard
to investments
A private
company can help mitigate the personal liability
of its fiduciaries by following
the advice of outside experts and by selecting
diverse, financially sound investments.
But, it cannot entirely eliminate their personal
liability.
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