Fiduciary Liability Insurance

Example

“The HR director was grateful for the company's fiduciary liability insurance when employees sued over allegedly excessive 401(k) management fees.”

Memory Tip

Fiduciary = 'Fee-DOO-she-airy' - when you're in charge of others' money, you need insurance for what you DO with it.

Why It Matters

Anyone involved in managing employee benefit plans faces personal liability under ERISA laws, including potential personal asset seizure. This insurance protects individuals from financial ruin when making good-faith decisions about complex benefit plans that may later be challenged in court.

Common Misconception

Many people think their company's general liability or D&O insurance covers fiduciary breaches, but these typically exclude ERISA-related claims. Additionally, people often assume only large companies need this coverage, but any business with a 401(k) or health plan creates fiduciary liability exposure for its officers and HR personnel.

In Practice

A manufacturing company with 200 employees faces a lawsuit claiming their 401(k) plan charged excessive fees, costing participants $2.3 million over five years. The company's fiduciary liability insurance has a $5 million limit with a $25,000 deductible. After three years of litigation, the case settles for $1.8 million, with an additional $400,000 in legal fees. The insurance pays $2.175 million total ($2.2 million minus the $25,000 deductible), protecting the individual fiduciaries from personal financial exposure. The annual premium for this coverage was $8,500.

Etymology

Derived from the Latin 'fiduciarius' meaning 'held in trust,' this insurance emerged following the Employee Retirement Income Security Act (ERISA) of 1974, which established strict fiduciary responsibilities for benefit plan managers.

Common Misspellings

Related Terms

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