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What is Fiduciary Liability Insurance: Your 101 Guide

Retirement planning team looking at plans for adding fiduciary liability insurance.

When it comes to navigating the complexities of retirement plan management, retirement plan sponsors should know the answer to this crucial question: What is fiduciary liability insurance?

Understanding the definition and purpose of fiduciary liability insurance can be helpful to retirement plan sponsors as litigation against sponsors expands and the intricacies of fiduciary responsibility become ever clearer. It can also be crucial in protecting yourself and the retirement program you manage.

Many people involved in the administration of these programs are not aware of their direct, personal responsibility. We've put together this “101” guide for retirement plan administrators like you to learn about fiduciary liability insurance and how it can safeguard your role as a retirement plan administrator.

Introduction to fiduciary liability insurance

Fiduciary liability insurance is a form of protection for individuals and entities who manage and have authority over employee benefit plans. It covers associated legal costs and claims resulting from allegations of fiduciary breaches.

The growing need for fiduciary coverage

Litigation against retirement plan sponsors is rising, highlighting the need for fiduciary liability insurance. Many administrators are not aware that they can be held personally liable for any mismanagement or breaches of fiduciary duty. To protect yourself and your retirement program from potential lawsuits, having the right insurance coverage is essential.

Understanding fiduciary liability insurance coverage

Fiduciary liability insurance is designed to provide financial protection and coverage for claims related to the management of employee benefit plans, including retirement programs. Fiduciary liability insurance offers a defense against a slew of potential administrative missteps, ranging from improper advice or disclosure to misrepresentations and wrongful denial of benefits. Recently, fee management has been highlighted as well.

Given the dramatic rise in premiums and more stringent requirements set by carriers, this insurance can prove vital in maintaining the financial health and integrity of a company's retirement program. It offers coverage for:

  • legal costs;
  • settlements; and
  • damages associated with claims of mismanagement or breach of fiduciary duty.

As a retirement plan administrator, this coverage ensures that you are protected from personal liability. It also safeguards the interests of retirement program participants and can demonstrate to plan participants that fiduciaries take their responsibilities seriously.

The importance of having adequate coverage

With increasing litigation against retirement plan sponsors, having adequate fiduciary liability insurance is more important than ever. Premiums for this type of insurance have increased significantly recently, making it essential to understand coverage options and requirements. You should also consider the policy's scope, including specific exclusions and limitations.

Insurance carriers now have more complex requirements for issuing policies, including an established and repeatable fiduciary process — which is often a required underwriting criterion. TruePlan can help design, implement and manage the fiduciary process, improving your chances of securing an appropriate insurance policy (see details below).

Case studies

Real-world scenarios underscore the value of fiduciary liability insurance. For instance, a sponsor who faces litigation due to alleged mismanagement may rely on this insurance to cover costly legal defenses and, potentially, the lion's share of any court-awarded damages. A real-world example is Spano vs. Boeing, where plaintiffs alleged Boeing charged excessive fees to 401(k) plan participants.

Working with TruePlan for fiduciary risk management

TruePlan is a trusted partner that specializes in fiduciary risk management for retirement plan administrators. We provide expertise in designing, implementing and managing a comprehensive fiduciary process. By working with TruePlan, you can enhance your fiduciary risk management strategy, meeting the requirements set by insurance carriers and securing the appropriate policy for your retirement program.

To get more information on this topic, check out our help fiduciary resources:

  1. Discover what a fiduciary investment advisor is and how they can assist you in your organizational goals. 
  2. Get a complete overview of fiduciary liability and it extends beyond employee benefits.
  3. Watch our quick hits session on fiduciary governance, and then, read the complimentary blog that explains the in-depth key elements of fiduciary governance.

As a retirement plan administrator, understanding and securing fiduciary liability insurance is of utmost importance. With the expanding litigation landscape, it is essential to protect yourself and retirement program participants from potential claims.

If you have questions or concerns about fiduciary liability insurance for retirement plan administrators, contact us today to learn more about our retirement plan services and how we can best support you.

TruePlan Benefit and Retirement Advisors is a marketing name of Healthcare Community Securities Corp., member FINRA/SIPC, and an SEC Registered Investment Advisor. This material has been prepared for informational purposes only and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. Past performance is not indicative or a guarantee of future returns. The information in this piece is not a recommendation to invest nor should it be relied upon as instruction to invest. It is not possible to invest directly in an index. Exposure to an asset class represented by an index may be available through investable instruments based on that index. Please visit our website https://trueplanadvisors.com/legal/indices_disclosures for further explanation and detail surrounding the indices referenced within.

This content is for informational purposes only. It has been partially generated from an AI language model, which may not always be exhaustive or tailored to individual circumstances. We encourage you to contact one of our experts for more information.  We assume no liability arising from any use of this content.

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