ERISA • Employment Law

Understanding ERISA Fiduciary Insurance

19 Jun 2021

ERISA assigns the “highest duty known to law” when a company manages an employee benefits program. This means that companies assume fiduciary duties to their employees when operating employee benefit plans. From a legal standpoint, this means that they have certain obligations that they must meet. Otherwise, the employee may sue them for a breach of their fiduciary duty. Employers often carry fiduciary insurance that could cover them in the event of a lawsuit filed by a Pennsylvania ERISA attorney.

How a Company Can Breach Fiduciary Duties

There are numerous ways that a fiduciary could breach their duty to a plan. They include:

  • Improper investing
  • Self-dealing
  • Failure to pay benefits
  • Conflicts of interest

Employers can be legally responsible for the errors of their employers and their agents. If they hire a company to administer their plan, that business is their agent, and they are liable for their acts. In addition to the acts described above, employers can be held responsible if they make any kind of error in administering the plan. 

This includes situations where they prematurely terminate an employee from coverage, resulting in incorrect or lost benefits. Employers can even be made to pay when they make an error in counseling employees about their health benefits. The range of possibilities where something can go wrong makes it too risky not to have this insurance. Companies never know when an inexperienced or incompetent employee can put them at risk for a large liability.

One area where beneficiaries often sue companies is in 401(k) plan investing and fees. Numerous employers have lost lawsuits that have found them liable for millions of dollars of damages. Employee benefit plans can also be sued in civil enforcement actions by the Department of Labor.

Who Needs Fiduciary Insurance

Fiduciary insurance is a good idea for:

  • The plan sponsor
  • The plan itself
  • Third parties who act as fiduciaries

If you are a current or former employee who has suffered damages from the negligence or wrongdoing of a company, you may be entitled to financial compensation under the law no matter what. Without fiduciary insurance, the money would come out of the company’s own assets or accounts. They would need to reimburse employees regardless of whether they have a fiduciary insurance policy. 

Companies can either obtain fiduciary insurance as standalone coverage or as part of other types of management liability policies. The important thing is that they have insurance when a claim is made. When that happens, the insurance company will manage the defense of the claim and decide whether it is covered by the policy. Nonetheless, even if it is not covered, that does not mean that the employer is off the hook when their employee files a lawsuit. Your legal rights remain the same regardless of what the company does. 

Contact an ERISA Disability Attorney

At The Garner Firm, we fight for your employee benefits. If your employer made an error or otherwise breached their fiduciary duty, you can file a lawsuit. Contact us online to set up your free initial consultation. 

Experienced Counsel

Mr. Garner is an ERISA employee benefits and employment attorney with over a decade of experience. The laws governing employee benefits, the employment relationship, and the workplace are complex.

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