As retirement plan administration and compliance continue to expand and evolve, it seems that the liability of operating a plan, and the potential for mistakes, will continue to grow. Insurance products can help reduce some of this risk. With retirement plans, like a 401(k) plan, 403(b) plan, or similar plans, you can utilize three types of insurance policies to cover your liability in operating the plan. Fidelity bond coverage is required; the other two are optional. We recommend carrying all three to minimize your liability and maximize your protection. Here is a summary of all three.
- Fidelity Bond
An ERISA fidelity bond is required for every plan. A Fidelity Bond protects ERISA plan participants from theft or embezzlement of plan assets. The policy must cover 10% of plan assets up to a $500,000 maximum.
- Employee Benefits Liability
Employee Benefits Liability (EBL) coverage generally insures against administrative errors involving benefit plans like a 401(k). It generally does not provide coverage for fiduciary acts. EBL coverage is usually included in your commercial general liability policy. Check to see if that endorsement is included in yours.
- Fiduciary Liability
Generally, a Director and Officers (D&O) policy will specifically exclude coverage for ERISA fiduciary acts. Therefore, a fiduciary liability rider to the D&O or a standalone policy is usually necessary to close the gap for fiduciary acts. Some ERISA fiduciary liability policies also provide, in addition to the fiduciary protection, administrative errors and omissions coverage, similar to what you usually see in the EBL coverage.
Every insurer is different. It is important to work with your insurance provider to make sure you have the coverage you need and provide some liability reduction associated with operating these plans.
Multnomah Group is a registered investment adviser, registered with the Securities and Exchange Commission. Any information contained herein or on Multnomah Group’s website is provided for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and, unless otherwise stated, are not guaranteed. Multnomah Group does not provide legal or tax advice. Any views expressed herein are those of the author(s) and not necessarily those of Multnomah Group or Multnomah Group’s clients.