FIDUCIARY CLAIMS BECOME PECUNIARY PAIN
Some chief executive officers (CEOs) think that fiduciary liability is solely the responsibility of the financial managers who manage and invest the money the company contributes to its benefits plans. They're only half right.
These CEOs cling to the notion that benefits plans still contain an exculpatory provision that requires benefits administrators to hold the employer harmless from any fiduciary liability claims launched by employees or beneficiaries, but the federal Employee Retirement Income Security Act of 1974 (ERISA) reinstated the employer as a culpable party. After all, employees trust their employers to choose capable financial managers and monitor their investment decisions. ERISA gives them several grounds for fiduciary liability claims, including plan discrimination, improper advice, and mismanagement of funds.
Under ERISA, a fiduciary is anyone who administers, manages, or exercises discretionary control over the benefits plan. These parties named in the plan must follow the plan's rules, which are intended to protect all of its participants. More stringently, a fiduciary's decisions must place the participant's interests ahead of any self-interests. Within the realm of benefits plans governed by ERISA are sick pay, deferred compensation, retirement pension, and health plans (any benefits plan, whether it is formally documented or not). As a fiduciary, an employer may suffer federal and statutory penalties and pay attorney costs for plan losses resulting from breach of fiduciary duty (for example, the duty of fair dealing).
Employers can protect themselves and their employees by carefully selecting competent, licensed administrators and purchasing Fiduciary Liability insurance. This policy shelters a profit or nonprofit organization's employees who are active in the benefits plan, company owners, partners, and trustees from costly judgments involving employer-sponsored plans, including retirement, pension, and health plans. Call us for details on Fiduciary Liability insurance.