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.