Personal Liability...Corporate Liability...or Both?

Who is a Fiduciary?

Fiduciary, as defined by the Employee Retirement Income Security Act (ERISA), is an individual or corporation that:

• Exercises any discretionary authority or discretionary control in managing a pension or benefit plan or exercises any authority or control in managing or disposing of its assets;
• Renders investment advice for a fee or other compensation, with respect to any monies or other property belonging to the plan; or
• Has any discretionary authority or responsibility in administering the plan

ERISA, which was passed in 1974, not only formalized the law associated with the administration of employee pension and benefit plans, but also implemented specific standards for fiduciary conduct, which in turned created a considerable liability exposure to persons serving in a fiduciary capacity.  

With fiduciary responsibility comes the threat of liability that could bring about a lawsuit against the fiduciary and plan trustees, resulting in significant attorney fees and leaving business assets exposed.  Fiduciaries can be held personally liable for breaching their fiduciary duty, so lawsuits could even extend to include the plan sponsor's board and individual employees, leaving personal assets unprotected.  

The following fiduciary liability claims scenarios illustrate the types of situations and costs associated with alleged breach of fiduciary duty:

Failure to enroll
An employee alleged he purchased disability coverage at work and the premium was deducted from his paycheck.  When he became disabled, he was informed by the disability carrier that they had no record of his enrollment.  He sued his employer and the disability carrier for breach of fiduciary duty and fraud seeking the cash equivalent of past and future disability benefit plus attorney fees.  The claim settled for over $100,000.

Failure to enroll in a Healthcare Plan
An insured employer offered healthcare benefits to its employees through the use of a third party health insurer. The health insurer allowed participants to add newborn dependent children to their plan as long as notice was provided within sixty days of the child’s birth. Following the birth of his child, an employee worked with his employer’s HR department and immediately submitted all of the necessary paperwork to add his newborn child to his plan. However, the insured employer failed to submit the paperwork to its health carrier within the sixty day window allotted, and thus the child was not insured. The child developed serious medical complications within the first year of her birth, incurring significant medical bills. When the bills were submitted to the health insurance carrier, they denied coverage for the bills due to the fact that the child wasn’t enrolled in the plan. The employee then turned to his employer for payment of the medical bills. The employer turned the claim over to its Fiduciary liability Insurance carrier, who settled the matter by paying well over $100,000 to cover medical bills plus attorneys; fees.

A potential solution to protect trustees, employers, administrators, and the plan itself with respect to errors and omissions in the administration of employee benefit programs as imposed by ERISA, such as medical insurance plans, pension programs, and 401(k) savings, is a fiduciary liability policy.

Fiduciary liability cases involve substantial defense and settlement costs, threatening the vitality and reputation of your company.  Persons and organizations covered by fiduciary liability policies fall into 4 categories:

• Assets of the named insured organization
• Assets of the benefit plans scheduled in the policy
• Personal assets of the individuals serving as fiduciaries of the insured
• Personal assets of any additional persons named on the policy

A policy will be far less costly than battling an uninsured fiduciary claim.

Koppinger & Associates can help with solutions to protect business assets and reputation. 

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