Fiduciary Liability INSURANCE

Protection against claims related to managing or administering employee benefits plans.

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Fiduciary Liability basics with Ore

What Fiduciary Liability does & doesn't cover

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BECAUSE

66% of workers consider a good benefits package the biggest determining factor in deciding whether or not to take a job.

WHEN

When you have 401(k), Employee stock ownership plans (ESOP) or Welfare plans in place.

WHY

Protection from mistakes of managing benefit plans.
Protection from lawsuits for most benefit disputes including wrongful denial and improper change in benefits.
Employees can sue even if their claims are unsubstantiated.

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THE PROTECTION

What Fiduciary Liability Covers

Misleading advice

Based on age, gender, race, etc.

Poor investment decisions

That affect employees and potentially reduce the value of their plans.

Poor or negligent investment practices

Failure to offer diversification options or charging excessive fees.

Poor communication

When administering health and other welfare plans that result in lost benefits.

Mistakes in computing or administering plans

Situations that result in lost benefits.

What it doesn’t cover

Damage to your business property or losses caused by your product, typically covered by a Business Owner’s Policy.
Claims that your professional work caused a financial loss, typically covered by Errors & Omissions insurance.
Employee injuries, typically covered by Workers’ Compensation.
Non-benefits-related employee lawsuits, typically covered by Employment Practices Liability or Employee Benefits Liability insurance.
Data breach-related costs, typically covered by Cyber insurance.

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FROM THE ACTUARIES

Fiduciary Liability Claims Examples

Incident

As part of its benefits package, a health-tech startup starts offering a 401k plan for their employees. However, because there is no dedicated HR resource managing this benefit, they accidentally fail to make timely contributions to the plan of amounts withheld from employees. The fiduciaries of the plan receive a letter from the Department of Labor alleging that they have violated several provisions of the Employee Retirement Income Security Act (ERISA).

Resolution

The fiduciary policy responds and provides coverage for the cost to defend the claim and the ultimate settlement, totaling $300,000.

Incident

A startup that provides an online marketplace to connect consumers to local dispensaries for cannabis products offers an Employee Stock Option Plan (ESOP) to its employees. The Department of Labor and several employees file a lawsuit alleging that the trustees of the plan failed to make impartial reviews of investment options resulting in several unwise investment decisions.

Resolution

The claim is handled by the insurance company, who is able to settle before proceeding to trial.

Incident

A fintech startup starts offering a 401k plan for its employees, and hires an outside administrator to manage it. After a few months, several employees start showing concern that the fees charged by the administrator are too high, and file a lawsuit alleging that this substantially reduces the value of their plan.

Resolution

The claim is handled by the insurance company, who is able to settle before proceeding to trial.

Mismanagement of benefit contributions

Incident

Resolution

The fiduciary policy responds and provides coverage for the cost to defend the claim and the ultimate settlement, totaling $300,000.

Unwise investments impacting stock options

Incident

Resolution

The claim is handled by the insurance company, who is able to settle before proceeding to trial.

Outside management of 401(k) plans

Incident

Resolution

The claim is handled by the insurance company, who is able to settle before proceeding to trial.

INSURANCE 101

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