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If your company offers a 401(k)-retirement or a group health plan for employees, you’re more likely to attract and retain talent. That’s the upside. On the other hand, you’re also taking on a fiduciary duty that poses what could amount to a serious risk should things go wrong.
Employees have been suing their companies over grievances, real and perceived, about their 401(k)s for years. And now, with the passage of the Consolidated Appropriations Act of 2021, they’ve begun suing employers for purported failures to properly manage their health plans.
In both instances, a Fiduciary Liability Insurance policy can help.
Without this coverage, the personal assets of the fiduciaries (i.e., the company owner, CEO, anyone who manages or has authority over the plan) can be at risk in the event of a lawsuit alleging a breach of fiduciary duties.
This is true even if the consequences of your decisions were unforeseen or unintentional.
It’s also true even if you hire outside advisors to take on your plans’ fiduciary functions; doing so does not automatically exclude you from any associated liabilities.
With a Fiduciary Liability policy in place, however, all legal costs, settlements, and any other court fees would be covered.
Protecting Against Health Plan and 401(k) Claims
Fiduciary liability insurance protects fiduciaries against claims alleging:
- Errors in administering plans, such as improper enrolment or terminations, resulting in lost or incorrect benefits.
- Errors in counseling when administering health or welfare plans, resulting in lost or incorrect benefits.
- Giving poor or negligent advice on investing employees’ retirement plans.
- Making risky investments in a defined benefit pension plan.
- Wrongful denial or improper change in benefits.
- Imprudent selection of and/or monitoring of third-party service providers.
The CAA’s Fiduciary Duty
Although its various provisions have been the law of the land for several years, many employers are still in the dark or confused about the CAA.
In the most general terms, the reforms that are embedded in the CAA are part of a larger effort to enhance transparency, reduce healthcare costs, and improve the overall quality of health plans.
As welcome as these changes may be, the law also ushered in a new era of heightened duty to ensure that company health plans comply with these new standards and that they act in the best interests of their plan participants.
In other words, there’s a whole new target on the backs of employers who don’t take care.
In short, given the complexity of the reforms in the CAA – and in managing 401(k)s – claims against fiduciaries should only be expected to become more commonplace.
Which is why fiduciary liability coverage should now be considered all-but indispensable, providing coverage for legal defenses and any resultant damages or settlements when employees take their employers to court.
How to Ensure Adequate Coverage
To navigate the fiduciary landscape more effectively, companies should consider the following:
Review existing policies: It’s essential to understand the specifics of your current Fiduciary Liability Insurance policy and assess whether it adequately covers the scope of the new duties imposed by the CAA as well as any retirement plans you have in place.
Educate your fiduciaries: Ensure that everyone involved in the management of employee benefit plans – health and retirement – understands their enhanced responsibilities under the new law. Regular training sessions can help prevent costly mistakes.
Stay informed: The regulatory environment is continually changing. Staying informed about any updates to employee benefits laws and regulations is crucial for maintaining compliance and ensuring that your coverage needs are met.
Fiduciary liability coverage is more than just an insurance policy; it is a vital component of a comprehensive risk management strategy. By understanding and adapting to these changes, businesses can not only comply with new regulations but also demonstrate their commitment to their employees' well-being. This proactive approach not only mitigates risks but also enhances trust and stability within the organization.
The Mahoney Group, based in Mesa, Ariz., is one of the largest independent insurance and employee benefits brokerages in the U.S. For more information, visit our website or call 877-440-3304.
This article is not intended to be exhaustive, nor should any discussion or opinions be construed as legal advice. Readers should contact legal counsel or an insurance professional for appropriate advice.