What Is Fiduciary Liability Insurance?
Fiduciary liability insurance protects the individuals and organizations who administer employee benefit plans — including 401(k) and pension plans, health insurance plans, and other employee benefit programs — from personal financial liability arising from claims of breach of fiduciary duty under ERISA (the Employee Retirement Income Security Act) and similar federal and state laws.
When you offer a 401(k), pension plan, health plan, or other employee benefit program, the individuals who make decisions about that plan — investment selections, plan design, enrollment procedures, and plan administration — become fiduciaries under federal law. Fiduciaries can be held personally liable for losses to the plan that result from their decisions. Fiduciary liability insurance protects against that personal liability.
GLS Insurance provides fiduciary liability insurance for businesses and organizations across all 17 states in our territory. This coverage is particularly relevant for our employer clients who offer retirement plans, and for the nonprofit and church clients whose boards and administrators have fiduciary responsibilities over benefit programs.
What Does Fiduciary Liability Insurance Cover?
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Breach of Fiduciary Duty Claims — Covers claims that plan administrators failed to act in the best interest of plan participants, failed to prudently manage plan investments, or failed to follow the plan’s governing documents.
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Investment Selection Claims — Covers claims that the selection of investment options in a 401(k) plan was imprudent or not in the best interest of participants. The proliferation of fee litigation and investment performance lawsuits has made this a significant area of exposure even for small plans.
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Plan Administration Errors — Covers claims arising from administrative errors in plan enrollment, benefit calculation, claims processing, and distribution.
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Defense Costs — Even meritless fiduciary claims generate substantial legal costs. Fiduciary liability insurance pays defense costs regardless of the outcome.
Who Needs Fiduciary Liability Insurance?
Any employer or organization that offers a qualified retirement plan (401(k), 403(b), pension) or an ERISA-covered health and welfare plan has fiduciary exposure. This includes businesses of all sizes, nonprofits, churches, schools, and any organization with a benefit plan. The individuals who serve on benefits committees, make investment selections, and administer plan operations are personally exposed without fiduciary liability coverage.
Fiduciary Liability Insurance FAQ
Does our Directors and Officers policy cover fiduciary liability claims?
D&O policies typically exclude ERISA and benefit plan fiduciary claims. Fiduciary liability is a separate coverage that must be purchased independently. Do not assume your D&O policy protects plan administrators from fiduciary claims.
We have a small 401(k) plan with only 20 participants. Do we need fiduciary liability?
Yes. Fiduciary claims can arise from plans of any size. In fact, smaller plans are sometimes more vulnerable because they lack the governance infrastructure of large plan sponsors. The cost of defending a fiduciary claim — even for a small plan — can be significant.
Is fiduciary liability the same as ERISA bond?
No. An ERISA fidelity bond protects the plan from theft or dishonest acts by plan officials and is required by federal law for qualified retirement plans. Fiduciary liability insurance protects plan fiduciaries from claims of breach of fiduciary duty. Both are needed — they cover completely different exposures.
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