Wyatt Employment Law Report

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A False Sense of Complacency – Fiduciary Liability Insurance: Don’t Forget the Nonrecourse Rider

By Rachel K. Mulloy

401K StatementMany employers that sponsor an employee benefit plan opt to obtain fiduciary liability insurance in addition to a fidelity bond, though ERISA only requires the latter.  Not to be confused with the fidelity bond, which insures a plan against loss due to fraud or dishonesty by people who handle plan funds or other property, fiduciary liability insurance protects plan fiduciaries against breaches of fiduciary duty.  Under ERISA a fiduciary can be held personally liable for plan losses that result from a breach of fiduciary duty, and the duties ERISA imposes on a plan fiduciary have been referred to as “the highest known to the law.”  Moreover, fiduciary liability coverage is often not included in D&O, E&O, or other liability policies an employer may purchase.  As such, it is generally advisable to obtain fiduciary liability insurance to protect plan fiduciaries against any breaches of fiduciary duty.

However, fiduciaries shouldn’t relax into the protection offered by fiduciary liability insurance without either (1) ensuring the coverage includes a nonrecourse rider that was purchased with non-plan assets, or (2) ensuring the fiduciary liability insurance was purchased with non-plan assets.  ERISA includes a prohibition against a Continue reading