Fiduciary Liability

A fiduciary is a  a person or organization bound to act in another parties best interest.  When engaging in management of a group retirement plan, an administrator is required to act as a fiduciary.  As we know people don't always do what they are supposed to.  We can manage the risk of a potential failure of fiduciary duty with two different types of insurance:

1) ERISA Bond

2) Fiduciary Liability Policy

An ERISA Bond is required by federal law when administering certain types of group retirement plans.  The law that created this requirement is Employee Retirement Income Security Act of  1974. The ERISA bond is a type of policy that will cover a minimum of $100,000 and up to $1,000,000 if the responsible fiduciary mismanages the funds via fraud or dishonesty.  The bond is suppose to be a minimum of 10% of the total fund value at the time of purchase and can be purchased for a maximum of a three year policy period.  The bond is insuring the money in the fund,

A Fiduciary Liability policy is different.  This type of insurance in not required by law, however it is still important to have.  This policy differs from the bond in that it is insuring the person or organization responsible for managing the fund against law suits that may arise out of executing those duties.  Any person or company managing these plans should seriously consider this coverage as the law suits arising from mismanagement are increasing at alarming rate.  What makes this fact most concerning is that the individuals can be held personally liable for damages.