Fiduciary Insurance: Everything You Need to Know

As a business owner or executive, you understand the importance of protecting your company’s assets. Part of that protection involves managing your employee benefits program. If you offer a retirement savings plan, such as a 401(k), you must comply with complex regulations to protect your employees’ interests. One way to manage your liability is through fiduciary insurance.

What is Fiduciary Insurance?

In simplest terms, fiduciary insurance protects business owners and executives from claims associated with their fiduciary responsibilities. When you offer a retirement savings plan to your employees, you become a fiduciary. This means that you have a legal obligation to act solely in the best interests of your plan participants and their beneficiaries.

Fiduciary insurance helps you manage your risk by providing coverage for claims arising from violations of your fiduciary duties. This coverage can include legal defense costs, settlements, and judgments.

What are Fiduciary Responsibilities?

As a fiduciary, you have several key responsibilities regarding your retirement savings plan:

• Acting solely in the interest of plan participants and their beneficiaries
• Managing the plan prudently and in accordance with plan documents
• Diversifying plan investments to minimize risk
• Paying reasonable plan expenses
• Following the plan’s terms for processing claims and appeals

If you fail to meet these responsibilities, you could face legal action and financial penalties.

Do I Need Fiduciary Insurance?

If your company offers a retirement savings plan, you are a fiduciary. This means that you have a legal obligation to manage the plan in the best interests of your employees. While fiduciary insurance is not required by law, it is recommended to manage your risk.

Even if you have a third-party administrator for your retirement plan, you are still responsible for selecting and monitoring their performance. If your administrator makes a mistake or doesn’t do their job properly, you could still be held liable. Fiduciary insurance can provide protection in these situations.

What Does Fiduciary Insurance Cover?

Fiduciary insurance covers claims alleging breaches of fiduciary duties, such as:

• Improper investment decisions
• Excessive fees or self-dealing
• Failure to provide adequate information
• Failure to properly diversify investments

It’s important to note that fiduciary insurance does not cover intentional or criminal acts. It also does not cover losses due to market fluctuations or poor investment performance.

How Much Fiduciary Insurance Do I Need?

The amount of fiduciary insurance you need depends on several factors, including the size of your company, the number of plan participants, and the assets in your retirement plan. It’s important to work with an insurance professional to determine the appropriate coverage for your situation.

How Much Does Fiduciary Insurance Cost?

The cost of fiduciary insurance depends on several factors, including your coverage limits, the size of your company, and your industry. On average, premiums range from $1,000 to $5,000 per year.

While the cost of fiduciary insurance may seem high, it is much less expensive than the potential costs of a lawsuit. The average settlement for a fiduciary breach is $2.3 million, and legal fees can add up quickly.

How Do I Choose a Fiduciary Insurance Policy?

When choosing a fiduciary insurance policy, it’s important to work with an insurance professional who understands your business and your retirement plan. Look for a policy that:

• Meets your coverage needs
• Provides legal defense coverage
• Has a strong financial rating
• Is backed by a reputable insurer

Review the policy carefully to ensure that you understand the coverage and any exclusions. Ask questions if anything is unclear.

Conclusion

Fiduciary insurance is an important tool for managing your risk as a fiduciary of your retirement savings plan. By providing coverage for claims arising from breaches of fiduciary duties, fiduciary insurance can help protect your business assets and ensure that you can continue to provide valuable benefits to your employees.

Work with an insurance professional to determine the appropriate coverage for your business and select a policy that meets your needs.

FAQs

What is a fiduciary?

A fiduciary is a person with a legal obligation to act solely in the best interests of another party. In the context of a retirement savings plan, a fiduciary is responsible for managing the plan in the best interests of the plan participants and their beneficiaries.

What are fiduciary responsibilities?

Fiduciary responsibilities include acting solely in the interest of plan participants and their beneficiaries, managing the plan prudently and in accordance with plan documents, diversifying plan investments to minimize risk, paying reasonable plan expenses, and following the plan’s terms for processing claims and appeals.

What is fiduciary insurance?

Fiduciary insurance is a type of insurance that protects business owners and executives from claims associated with their fiduciary responsibilities. Fiduciary insurance provides coverage for claims arising from violations of fiduciary duties, including legal defense costs, settlements, and judgments.

How much does fiduciary insurance cost?

The cost of fiduciary insurance depends on several factors, including coverage limits, the size of your company, and your industry. On average, premiums range from $1,000 to $5,000 per year.

Do I need fiduciary insurance?

If your company offers a retirement savings plan, you are a fiduciary. While fiduciary insurance is not required by law, it is recommended to manage your risk.