As union governance protocols broaden and statute laws change, the exposure of employee benefit plans, pension plans, and plan sponsors to fiduciary and pension litigation is growing.
A Fiduciary Liability policy covers all associated legal costs to defend against claims of errors and a breach of fiduciary duty.
The Employee Retirement Income Security Act of 1974 (“ERISA”) establishes strict standards of fiduciary conduct. Any fiduciary that breaches any ERISA obligations, responsibilities, or duties may be personally liable to compensate the plan for any resulting losses. If the Department of Labor brings an action, fiduciaries can also face civil penalties.
Our hope is that you have a better understanding and are empowered, with a better understanding of the risk you can transfer to other parties via a fiduciary liability insurance product.
If you’d like help, we’d invite you to talk with a Risk Assessment Advisor. Our dedicated fiduciary liability team can help clients address these their exposures. For more clarity on pricing, your Union will be benchmarked against similar Unions to identify any unforeseen exposures and premium savings opportunities.
Who Needs a Fiduciary Policy?
If your Union is a very small one that doesn’t have benefits packages to offer employees, then you probably do not need a fiduciary policy. However, as soon as you start providing or managing any type of employee benefits, you will want to look into fiduciary liability insurance.
As with all insurance, it’s always advised to take the “better safe than sorry approach,” considering that the paperwork and processes for employee benefits are often quite complicated. Even if your Union is really careful about it, mistakes can happen.
If you’re offering medical, dental, vision, health insurance, or 401(k) and 403(b) retirement plans, and even something like a stock option plan (which can lead to your company being sued if there are any issues found with stock prices), you should consider fiduciary liability coverage.
Why Do Unions Need Fiduciary Liability Insurance?
The main reason Unions invest in fiduciary liability insurance is the fact that claims are almost always very costly. Not only are the costs of going to court and defending yourself high, but the chances of losing or having to settle with the plaintiff are significantly high as well. If you’re a Union of any size, one fiduciary liability claim can cripple your Union financially.
Also, as mentioned earlier, employee benefit plans are generally very complex and mistakes can be made at any time, even if you have an entire team working on it. If the fiduciary does not follow the benefits plan exactly as it is laid out, they could be sued or penalized.
Furthermore, even if you’re hiring outside vendors to run your employee benefit plans, your employees with fiduciary responsibility or oversight of employee retirement plans will more than likely be named alongside the vendor in an employee’s complaint.
What Does Fiduciary Liability Insurance Cover?
Fiduciary liability insurance protects your Union against fiduciary mismanagement. However, it will not protect your Union from fraudulent cases of theft. We work with the best fiduciary liability carriers to protect against these claims and more:
- Wrongful denial or improper change in benefits
- Errors or omissions in plan administration
- Improper advice or counsel
- Failure to administer the plan according to plan documents
- Conflicts of interest and prohibited transactions
- Imprudent investment of assets or lack of investment diversity
- Imprudent selection and failure to monitor third-party service providers
- Automatic coverage for most newly created or acquired plans
- Penalties and fees levied by the DOL and IRS under a voluntary settlement program
- Coverage for challenges to settlor functions
Expanded insurance coverage is also available to cover the costs of pre-claim defenses costs and Union expenses that are accumulated when a plan sponsor needs to change or modify the plan to make it compliant.
Your fiduciary liability policy will usually cover all your legal defense costs, all settlements negotiated, damages awarded by the court when there’s a finding of wrongdoing, and investigations into the alleged wrongdoing.
What Doesn’t Fiduciary Liability Insurance Cover?
It’s important to remember that fiduciary liability coverage is fairly focused and narrow. The focus is clearly on breach of duties related to the mismanagement of benefits. Obviously, fiduciary liability policies will not cover criminal acts and intentional wrongdoing, the intentional embezzlement of fidelity bonds or any other corporate funds.