Fiduciary Liability Insurance
Coverage protecting plan fiduciaries against claims alleging mismanagement of employee benefit plans governed by ERISA.
What It Is
Fiduciary Liability Insurance protects individuals and organizations that serve as fiduciaries of employee benefit plans governed by the Employee Retirement Income Security Act (ERISA). A fiduciary is anyone who exercises discretionary authority or control over plan management, plan assets, or plan administration, or who provides investment advice for a fee.
Covered claims include allegations of imprudent investment selection, excessive plan fees, failure to diversify plan assets, prohibited transactions with parties-in-interest, and errors in plan administration such as incorrect benefit calculations or enrollment mistakes.
Fiduciary liability is distinct from D&O liability — D&O covers management of the company, while fiduciary liability covers management of the benefit plan. ERISA imposes personal liability on fiduciaries, meaning individual plan committee members can be personally sued.
Why It Matters for Brokers
The wave of excessive-fee lawsuits against 401(k) plans has made fiduciary liability insurance essential for any employer sponsoring a retirement plan. Settlements in these cases routinely exceed $10M for large plans, and even small plans face significant defense costs. Brokers must proactively recommend this coverage because most employers don't realize their HR director, CFO, and benefits committee members face personal ERISA liability.
Real-World Example
A manufacturing company's 401(k) plan with 1,200 participants is sued by a class of employees alleging the plan committee failed to monitor investment fees, resulting in participants paying 0.85% in total plan costs when comparable index funds were available at 0.15%. The fiduciary liability policy covers $2.1M in settlement costs and $600K in defense fees. The policy also covers the individual committee members who were named personally in the lawsuit.
Common Mistakes
- 1Confusing fiduciary liability with the ERISA fidelity bond (which covers theft of plan assets) — they are completely different coverages addressing different risks.
- 2Not extending fiduciary liability coverage to health and welfare plans, which are also ERISA-governed and can generate claims for benefits denials and COBRA violations.
- 3Failing to verify that the policy covers voluntary compliance correction program (VCP) filings with the IRS for plan administration errors.
How brokerageaudit.com Handles This
Policy Checker extracts fiduciary liability coverage terms including covered plans, settlor function exclusions, and regulatory proceeding coverage. The system cross-references ERISA plan information with the fiduciary policy to ensure all plans are properly covered.