After some large corporate failures and resulting pension plan failures in the early 1960’s the Federal Government passed the Employee Retirement Income Security Act (ERISA). ERISA was enacted in 1974 to establish minimum standards for pension plans and other employee benefit plans in private industry. ERISA was enacted to protect the interests of employee benefit plan participants and their beneficiaries from certain financial crimes and other misconduct. ERISA requires certain financial and plan information disclosure to participants as well establishing standards of conduct for those acting as plan fiduciaries. ERISA also provides for certain remedies and access to the Federal Courts for plan participants.
Many employers confuse ERISA bonding requirements with protections for the plan administrators, trustees and fiduciaries. ERISA requires that Qualified Pension Plans be covered by Fidelity coverage (an ERISA Crime Bond) equal to 10% of the plan assets subject to a minimum of $1,000 per plan with a maximum Bond limit of $500,000 per plan. In cases where the Pension Plan holds employer securities, the maximum required limit is $1,000,000. The ERISA Bond protects the participants of the pension plan against fraud, theft and other deliberate dishonest acts by the fiduciaries of the plan.
While the ERISA Bond protects the participants against financial loss due to the dishonest or fraudulent acts of the fiduciaries, Fiduciary Liability insurance protects the individual fiduciaries (plan administrators, trustees, and employees of the sponsoring organization) for claims against them by participants and their beneficiaries. Fiduciary liability insurance is not required by ERISA. The necessity of carrying this coverage comes from the need to protect the assets of each individual that manages, administers or oversees the employee benefit plans. Fiduciary liability insurance can protect against claims for mismanagement of most any employee benefit plan including qualified pension plans and other group benefits such as health, dental, vision, life and disability insurances.
It is important to understand the difference between the ERISA requirements for qualified plans that protect the participants versus liability coverage that protects those that oversee and manage the plans. Both groups have a need for protection, but the latter is often over-looked. We highly recommend that you consider Fiduciary liability insurance. Please talk to your professional agent at Ten Eyck Group to see how your company, staff and employees can be better protected.
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