(b)lines Ask the Experts – Coverage Amount for Fiduciary Liability Insurance

“I know from a prior Ask the Experts column about the difference between a Fidelity Bond and Fiduciary liability coverage, but I had a question regarding the amount of coverage.

“The prior Q&A mentioned that Fidelity Bond coverage is generally 10% of assets up to $500,000, but no corresponding required amount was listed for Fiduciary Liability coverage. Is there any required or recommended amount for coverage under a fiduciary liability insurance policy?” 

Michael A. Webb, vice president, Cammack Retirement Group, answers:  

Good question! The short answer is there is no specific required/recommended amount under the Employee Retirement Income Security Act (ERISA) because, as the column indicates, there is no specific requirement under ERISA that retirement plans purchase a fiduciary liability insurance policy in the first place. However, as a practical matter, most  ERISA plan sponsors purchase such policies to protect their fiduciaries, since claims often exceed $1 million dollars (or even $10 million or $100 million for the largest plans) when the cost of defending the claim is factored in, and the liability for such claims is personal, not corporate.

What is an appropriate amount of fiduciary liability insurance for your plan? The answer will be based on plan size and other risk factors that come into play with the underwriting of any insurance policy. Your insurance professional who works with you on the policy can, and should, benchmark your coverage against other plans with similar size/risk characteristics to your plan, so that you can arrive at an appropriate amount of coverage. And such benchmarking should not be a one-time event; it should be completed that every policy renewal so that the amount of coverage can be adjusted as plan assets increase and other risk factors change.


NOTE: This feature is to provide general information only, does not constitute legal advice, and cannot be used or substituted for legal or tax advice.  

Do YOU have a question for the Experts? If so, we would love to hear from you! Simply forward your question to rmoore@assetinternational.com with Subject: Ask the Experts, and the Experts will do their best to answer your question in a future Ask the Experts column.