A fiduciary is a person, corporation, or association that holds assets in trust for another party and is required to act in the best interest of that party. For example, a pension fund manager is required to manage the assets of the plan in the best interest of the plan’s beneficiaries.The Employee Retirement Income Security Act of 1974 (ERISA) states that anyone who has any discretion over any type of employee benefit plan is a fiduciary. Fiduciaries can be held liable for negligence or fraud regarding the plan and for the acts of outside entities that provide services such as actuarial firms and third-party administrators.Fiduciary liability insurance protects fiduciaries for claims incurred in the administration of an employee benefit plan. Although often written as a separate policy, it is also often included in Directors and Officers Liability coverage.
ERISA requires a fidelity bond on plan trustees as well. The bond will pay for dishonest acts on the part of the trustees for the benefit of the plan only. Thus, the fidelity bond reimburses the plan for losses due to dishonest acts and the liability insurance protects the trustee for alleged negligence.
A second coverage often purchased with fiduciary liability is Employee Benefits Liability coverage. This covers plan administrators for errors and omissions in the management of the plan. An example is if the firm failed to enroll an employee in the firm’s group health plan.