Fiduciaries

Fiduciary Liability – Where does it come from?

■Employee Retirement Income Security Act (ERISA) of 1974.
■Common Law.
■State Statute.
Who comes under ERISA?

■Fiduciaries.
■“Surprised Fiduciaries.”
■“Parties in interest.”
■Employees of above
What happens when you violate ERISA?

■Fines.
■PERSONAL LIABILITY WHICH SURVIVES BANKRUPTCY!!!
Who are fiduciaries?

■The person who administers your company’s benefits.
■Anyone who is involved in the rendering of:
a) Management of benefit plans and their assets.
b) Investment advice to benefit plans or their participants
Who are “Surprised Fiduciaries”?

■Company officers and directors.
■Member’s of a plan’s Investment or Administrative Committee.
■Insurance Agents, Stock Brokers, and Accountants.
DID YOU KNOW?

■Despite any indemnification agreement that may exist, EACH FIDUCIARY IS PERSONALLY RESPONSIBLE to the benefit plan for any loss caused by improper action, or inaction, on his/her part.
■If two or more fiduciaries both contribute to a loss EACH IS LIABLE FOR THE FULL AMOUNT AND NEITHER CAN MAKE THE OTHER SHARE THE REPAYMENT.
A few fiduciary liability examples:

■Fiduciary/Employer failed to carry required amount of Fidelity cover at time of loss (ERISA requires, as a minimum, Fidelity cover in the amount of 10% of the plan funds or $500,000, whichever is less).
■Fiduciary/Employer failed to realize that the above bonding requirement applies separately to every plan sponsored by the employer. An employer sponsoring a pension plan, a health insurance plan, a group life plan, a sick day plan and a paid vacation plan could easily have a $2,500,000 Fidelity coverage obligation!
■Imprudent choice of insurance company, mutual fund or third-party service provider.
■Faulty advice or counsel!
■Fiduciary purchases Fiduciary liability cover with his/her own money is subject to insurer’s “RIGHT OF RECOVERY” clause against any insured who breaches their fiduciary responsibility.
■Improper amendments to plan documents
■Denial or change of benefits
■Improper disclosure to plan participants
■Administrative error, etc.
DID YOU KNOW?

■Insurance for this exposure is cheap depending on asset size – – premiums usually run from $100 to $1,000 annually.