The Employee Retirement Income Security Act (ERISA) of 1974 was designed to protect private pension plan participants' rights. Fiduciaries of all employee benefits plans, including welfare plans and pension plans, assumed new responsibilities relating to the management and administration of benefits plans. Under the law, a fiduciary can be held personally responsible for shortages in the benefit plan’s assets resulting from a breach of fiduciary duty, such as improper investment of funds.
Fiduciaries may also be held personally liable for breach of their responsibilities in the administration or handling of employee benefit plans. ERISA does not require fiduciary Liability Insurance. However, it is strongly recommended if you are a fiduciary of welfare and/or pension plan because your personal assets are at stake. Many fiduciaries believe their ERISA fidelity bond protects their personal assets, but it doesn’t.
Furthermore, many think that this type of coverage is included in their Directors and Officers Insurance policy. Most D&O policies exclude fiduciary liability exposures as well as those exposures pertaining to the ERISA. ERISA also broadly defines the types of employee benefit plans for which fiduciaries are responsible. This extensive list can include pension plans, profit-sharing plans, employee stock ownership plans (ESOPs), and even health and welfare plans.
If you are an owner or officer who makes decisions about your company’s 401(K) plan or other qualified employee benefit plans, odds are, your personal assets are at risk. Under ERISA, fiduciaries can be held personally liable for losses to a benefit plan incurred due to their alleged errors, omissions, or breach of their fiduciary duties.
Designated fiduciaries aren’t the only targets of such lawsuits; targets can also include the employer and even the plan itself. Claims can be brought by plan participants, participants’ legal estates, the Department of Labor, and the Pension Benefit Guaranty Corporation.
Claims May Include Allegations Of
- Improper advice or disclosure
- Inappropriate selection of advisors or service providers
- Negligence in the administration of a plan
- Conflict of interest concerning the investments
- Lack of investment diversity
- Imprudent investments
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