The Employee Retirement Income Security Act of 1974 establishes specific duties and standards for discretionary and nondiscretionary activities in the management of employee benefits plans. Liabilities incurred by fiduciaries and any other “party-in-interest” created by ERISA have resulted in the need for several types of insurance coverages.

The only insurance mandated by the provisions of this legislation is employee dishonesty coverage (fidelity bond). It need not be a separate policy from an entity’s regular employee dishonesty coverage. However, it would need to be endorsed to comply with ERISA-required coverage. Limits must be sufficient to cover 10 percent of the assets of each plan insured, subject to a maximum of $500,000 for each plan. 

Other types of insurance that are just as important, though not mandated by ERISA, include fiduciary liability and employee benefits liability. Fiduciary liability coverage will protect fiduciaries, such as corporate executives and other authorized employees, if they are held personally liable for losses sustained to pension—or welfare-plan assets resulting from the negligent performance of fiduciary duties. The employer entity likewise has a vicarious liability exposure to protect those assets. The typical directors and officers liability policy will not assume ERISA liabilities, so a separate fiduciary liability policy normally will be required.

Wrongful acts of a discretionary nature must be distinguished from non-discretionary activities. Fiduciary liability affords protection for discretionary responsibilities involving plan assets, not necessarily administrative, non-discretionary responsibilities. The administrative elements of managing a benefits plan create liabilities that can be incorporated into a fiduciary liability policy, covered separately under an employee benefits liability policy or covered by endorsement to the general liability policy.

An employee benefits liability policy protects insureds in rendering counsel to employees, interpreting employee benefits, processing employee’s personal records and effecting employee enrollment or termination of benefits. Typical coverage extends to employee benefits plans outside the jurisdiction of ERISA, even to include workers’ compensation, unemployment, Social Security, disability or similar plans.

If you would like to learn more about employee dishonesty coverage, fiduciary liability or employee benefits liability insurance, please give us a call.