Fiduciary Liability INSURANCE

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

 
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Fiduciary Liability basics with Ore

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What Fiduciary Liability does & doesn't cover
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Recommendations based on stage and vertical
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Which add-ons make sense for your startup
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

Case Study
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
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.
Unwise investments impacting stock options
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.
Outside management of 401(k) plans
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.
INSURANCE 101

What Is Startup Business Insurance and Why Do I Need It?

In the fast-paced world of startups, having insurance in place can mean the difference between making the deal or getting passed over for a more prepared competitor.
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