Employees are critical to the success of any organization. However, with employees come certain risks and potential liabilities. Those risks and potential liabilities are increased with the offering of benefit and retirement plans. In some cases, the liability can become very personal.
There are three very important insurance protections employers should have to satisfactorily protect themselves both statutorily and from the costs of legal liability.
The Employee Retirement Income Security Act of 1974, known as ERISA, has a requirement that an employer who offers a retirement plan, secure a fidelity bond in an amount equal to 10% of the total plan assets or $500,000, whichever is less, to protect those plan assets. If the sponsor includes their own corporate securities in the plan, the limit goes up to $1,000,000. This bond protects the plan assets should any of the plan assets themselves be depleted through some illegal activity of an employee (i.e. – Absconding funds)
Additionally, employers can make errors in the administration of a benefit or retirement plan such as failing to enroll someone on a timely basis. For example, if an employee had an uncovered medical claim because an HR Administrator failed to enroll them on a timely basis in the plan, then liability would come back to the employer. Employee Benefit Liability coverage is very easily and inexpensively added to a typical General Liability policy to cover administrative type errors.
Finally, the ERISA legislation defines who is a Fiduciary with respect to plans coming under the law. A fiduciary is anyone who exercises discretionary authority or control respecting the management or administration of an employee benefit plan. As a fiduciary that individual is held to a standard of care that requires them to do what is in the best interest of the individual over whose assets they are exercising that authority or control. The broad nature of the fiduciary definition puts many management people and plan administrators at risk and the protection of the corporation is removed exposing these people to personal liability. Protection of fiduciaries is secured through a Fiduciary Liability policy purchased by the corporation. Often times this policy will also provide coverage for administrative errors in addition to the coverage for discretionary acts as a fiduciary.
There are a vast array of Risk Management policies and procedures that can, and should, be implemented to minimize the risk of a claim arising, but the financial impact of these claims can be quite significant, and as pointed out, very personal in nature.
Contributing Expert: William D. Schneider, CPCU
Please note that the information contained in this document is designed to provide authoritative and accurate information, in regard to the subject matter covered. However, it is not provided as legal or tax advice and no representation is made as to the sufficiency for your specific company’s needs. This document should be reviewed by your legal counsel or tax consultant before use.