When the Employee Retirement Income Security Act of 1974 (ERISA) was passed, it was a game changer for people responsible for employee benefit plans. ERISA substantially increased the liabilities of fiduciaries, defined as anyone who exercises any discretionary authority or control over the management or assets of any type of employee benefit plan.
That means if you have employees and offer a benefits plan, you and anyone in your company who has that kind of authority or control over the plan can be held liable for any breach of your fiduciary duties. That could include:
- Giving bad advice on investing employee retirement plans or acting in a way that presents a conflict of interest
- Poor communication or errors in counseling to employees, resulting in lost benefits
- Errors in computing or administering plans, such as improper enrollment or terminations, resulting in lost benefits
Under ERISA, you can even be held liable for the acts, errors, and omissions of outside entities that provide administrative and related services such as consulting, law, accounting, and professional administration firms.
Reporting and disclosure are key
One major component of tending to those fiduciary duties is staying compliant with reporting and disclosure requirements from the U.S. Department of Labor (DOL) and IRS, many of which have gone into effect this year as part of the Affordable Care Act (ACA). Here are a just few of the major ones to remember:
- Forms 1095-C (Employer-Provided Health Insurance Offer and Coverage) and 1095-B (Health Coverage): Deadline to furnish to individuals extended to March 31, 2016.
- Forms 1094-B and 1094-C (with copies of Forms 1095-B/1095-C): Deadline for filing with IRS extended to May 31, 2016 if filing by paper, and to June 30, 2016 if filing electronically.
- Form 5500 (Annual return/report of employee benefit plans with more than 100 participants): Deadline to file with DOL is August 1, 2016 for calendar year plans, or seven months after the end of the plan years for non-calendar year plans.
- Summary Annual Report: due September 30, 2016 for calendar year plans, or two months after the 5500 filing deadline for non-calendar year plans.
For a more complete list, download the DOL’s Reporting and Disclosure Guide.
If you offer employee benefit plans, fiduciary liability is an enormous exposure – and it's only getting more complex. You need robust financial protection for these risks.
That’s where fiduciary liability insurance comes in. This coverage is designed to protect you and your business assets against fiduciary-related claims of mismanagement of your employee benefit plans. It covers the legal expenses of defending a claim and any financial losses the plan may have incurred due to errors, omissions, or other breach of fiduciary duty.
But choosing the right coverage can be complicated. There are at least two other types of coverage related to fiduciary liability insurance: ERISA bonding, which is required by law and offers protection from the dishonest acts of administrators or trustees; and employee benefit liability (EBL) insurance, which covers certain claims arising out of errors or omission in the administration of a benefit plan.
There are other options too. You can get coverage as part of a Directors and Officers (D&O) policy, your CGL policy, or professional liability (E&O) policy with a special endorsement tailored to cover fiduciary liabilities.
You’ll also want to make sure your fiduciaries are covered for potential penalties due to ACA, COBRA or HIPAA violations. And keep in mind, even a standard fiduciary liability policy doesn’t cover it all. It won’t cover outside advisers, consultants, or administrators of your plans. It also won’t cover defense costs for responding to most regulatory investigations – you’ll need pre-claim investigation coverage and interview coverage for that.
Today’s employee benefit plan fiduciaries face a host of evolving risks that make fiduciary liability insurance a smart choice. When you need help sorting it all out, talk to our benefit plan experts at Higginbotham Insurance.