Magazine

Saxon Angle | Published in February 2009

Your New Year's Resolution

Make sure your fiduciaries are protected adequately

By Steve Saxon | February 2009
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The financial crisis facing our country is having a dramatic, adverse impact on our pension system, even as the plaintiff's bar continues to file new lawsuits against sponsors alleging violations of ERISA in connection with investment losses of all kinds and 401(k) fees. Add these factors together and you have a virtual minefield of potential liability. A small investment of time and research now could pay you back in spades if you find yourself in the middle of a lawsuit or Labor Department investigation.

Fiduciary Liability Insurance

First and foremost, if you don't have a fiduciary liability policy, please review the terms of your commercial liability insurance to determine whether they exclude coverage for liabilities incurred under ERISA. If they do, an amendment or modification, usually in the form of a rider, is necessary or, better yet, obtain separate fiduciary liability coverage. Make sure:

• The policy covers everyone in your company who performs services with respect to the plan, including members of the board if they have a role in appointing members of the plan's fiduciary committee, and HR staff, if they interact with participants.

• The policy provides coverage early on in a dispute. A lot of expenses, including attorneys' fees, can be incurred before a complaint is filed in court.

• The amount of coverage is appropriate in light of the size of a plan's assets. We recently reviewed a policy where the plan held almost $100 million in assets, including an employer stock fund, but their fiduciary policy provided only $1 million in coverage. The time to fix this kind of obvious problem is before a lawsuit is filed.

• The deductible is appropriate in light of other available sources of protection, such as indemnifications. The last thing you want is for the plan's fiduciaries to be personally responsible for substantial losses because the deductible was too high.

• The exclusions from coverage do not extend to events or circumstances that may expose you to liability for which no coverage would be available.

• If the plan purchases the policy (which ERISA permits), make sure the company purchases nonrecourse riders. These will protect the fiduciaries from an action by the insurance company to recoup any recoveries paid on behalf of the plan's fiduciaries.

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