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FIDUCIARY LIABILITY COVERAGE
Fiduciary liability, also known as pension trust liability, provides coverage
for loss that the insured becomes legally liable to pay because of a claim made
against the insured for any alleged wrongful act by such insured or by any other
person for whom the insured is legally responsible. It also covers the defense
costs in connection with a covered claim. The policy is written on a claims
made form.
A wrongful act includes any violation of the responsibilities, obligations,
or duties imposed on fiduciaries by the Employee Retirement Income Security
Act (ERISA), as well as acts, errors, or omissions in the performance of the
duties of the plan administrator.
The ERISA definition of a fiduciary is very broad. It is any person so named
in the plan or any person who exercises any discretionary authority or control
with respect to the management or administration of the plan or its assets.
The rules and regulations of ERISA include strict guidelines for fiduciaries.
Failure to comply can result in lawsuits from employees, former employees, and
beneficiaries, as well as the Secretary of Labor, Treasury Department, and Pension
Benefit Guarantee Corp. The sponsor corporation as well as the individual fiduciaries
are at risk.
ERISA also has a broad definition of what is considered an employee benefit
plan. It includes any plan, fund, or program established or maintained for the
purpose of providing employee benefits to its participants or beneficiaries.
Under a fiduciary liability policy, the insured includes the following:
- The sponsor organization
- The plan(s)
- Any natural person in his/her capacity as fiduciary or administrator of
the plan(s)
Most fiduciaries are unaware of their personal financial risk or that of the sponsor
organization. Fiduciary liability coverage provides one way of reducing the risk
and providing protection for the sponsor organization and individual fiduciaries.
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