Fiduciary Liability Policy
Coverage protecting plan administrators and fiduciaries from personal liability arising from the management of employee benefit plans under ERISA.
What It Is
A Fiduciary Liability Policy protects individuals and organizations that serve as fiduciaries of employee benefit plans governed by ERISA. Fiduciaries include anyone who exercises discretionary authority over plan management, plan assets, or plan administration — which often extends beyond named plan trustees to include HR directors, CFOs, and benefits committee members.
The policy covers defense costs and damages from claims alleging breach of fiduciary duty, including claims related to imprudent investment selection, excessive fees, failure to diversify plan assets, prohibited transactions, and errors in plan administration.
Fiduciary liability is distinct from the ERISA fidelity bond (which covers employee theft of plan assets) and from D&O coverage (which covers corporate management liability, not plan-specific fiduciary duties).
Why It Matters for Brokers
ERISA fiduciary litigation has surged, particularly excessive fee lawsuits targeting 401(k) plans. Individual fiduciaries face personal liability for breach of duty — their personal assets are at risk if the plan's fiduciary liability insurance is inadequate. Brokers serving employer clients with retirement plans and health and welfare plans should recommend fiduciary liability coverage as part of a comprehensive management liability program. Failure to recommend this coverage when the exposure is clear creates E&O risk for the broker.
Real-World Example
A plan participant in a company's 401(k) plan files a class action alleging that the plan's investment options have excessive management fees compared to available index fund alternatives. The lawsuit claims the fiduciary committee breached its duty of prudence by not reviewing fees for five years. The fiduciary liability policy covers $200,000 in defense costs and a $750,000 settlement. Without the policy, the individual committee members would have been personally liable.
Common Mistakes
- 1Not recommending fiduciary liability to employers with retirement plans, leaving plan fiduciaries personally exposed.
- 2Confusing the ERISA fidelity bond requirement with fiduciary liability insurance — they are different coverages with different purposes.
- 3Failing to include the company entity as a covered party when the company itself serves as a plan fiduciary.
How brokerageaudit.com Handles This
Policy Checker identifies fiduciary liability coverage in management liability packages and verifies that plan assets, participant counts, and fiduciary structures are accurately reflected in the policy's coverage parameters.