When your company starts offering benefits like a 401(k), health insurance, or stock options, you take on fiduciary responsibilities under federal law. That means company leaders and employees who manage those plans can be held personally liable if something goes wrong, even for honest mistakes.

Fiduciary liability insurance helps protect both your company and the individuals responsible for benefit plan oversight. It covers the legal and financial fallout from claims that a plan was mismanaged, giving leadership the confidence to offer competitive benefits without taking on unnecessary risk.

What Is Fiduciary Liability Insurance?

Fiduciary liability insurance protects a business and its designated fiduciaries — typically executives, HR professionals, or plan administrators — from claims alleging mismanagement of employee benefit plans.

Under the Employee Retirement Income Security Act (ERISA), anyone who exercises discretion over a plan’s administration or assets is considered a fiduciary. If a plan is mismanaged or benefits are denied incorrectly, fiduciaries can face lawsuits from employees or enforcement actions from regulators.

Fiduciary liability coverage helps pay for legal defense costs, settlements, or judgments related to such claims. This protection extends not only to the company but also to the personal assets of the individuals involved.

What Does Fiduciary Liability Insurance Cover?

A fiduciary liability policy generally covers a range of errors and omissions in the management of benefit plans, including:

• Administrative mistakes, such as failing to enroll an employee or miscalculating benefits
• Mismanagement of plan assets, including imprudent or poorly diversified investment selections
• Improper advice or disclosure, like providing inaccurate information about plan options
• Delays or errors in contributions, such as failing to remit employee 401(k) contributions on time
• Wrongful denial of benefits, such as an employee being denied health coverage due to administrative error
• Conflicts of interest or prohibited transactions, where a fiduciary’s decision benefits the company or themselves rather than plan participants
• Failure to follow plan documents or ERISA-mandated fiduciary duties like prudence and loyalty

Modern fiduciary policies may also include coverage for:

• Certain regulatory penalties or correction program fees from the Department of Labor or IRS
• Defense costs related to regulatory investigations
• Penalties related to inadvertent HIPAA or Affordable Care Act violations

Coverage typically applies both to the organization and to individual fiduciaries, ensuring protection for personal assets if a claim arises.

What’s Not Covered

Fiduciary liability insurance is designed to cover negligence, not intentional wrongdoing. Common exclusions include:

• Fraud or criminal acts, including theft or embezzlement
• Deliberate failure to fund benefit plans
• Claims known before the policy’s effective date
• Bodily injury or property damage, which fall under General Liability coverage
• Errors by outside vendors or advisors, who should maintain their own E&O or fiduciary coverage
• Employment-related claims like discrimination or wrongful termination, which are covered under Employment Practices Liability (EPLI)

Companies that offer retirement or health benefits are also required by ERISA to maintain a separate ERISA fidelity bond, which protects plan assets from theft or fraud. That bond, however, does not cover mismanagement or breach of duty.

Learn more about what Fiduciary Liability Insurance covers.

ERISA Bonds vs. Fiduciary Liability Insurance

Companies offering employee benefit plans are required by federal law to maintain an ERISA fidelity bond. This bond protects the plan’s assets against theft or fraud by individuals who handle plan funds. It’s essentially a form of crime insurance designed to make the plan whole if someone steals from it.

However, an ERISA bond doesn't protect the company or its leaders from claims of mismanagement, poor investment decisions, or administrative errors — the types of exposures that typically lead to lawsuits or regulatory action. That’s where fiduciary liability insurance comes in.

In short:

• ERISA bonds protect plan assets from theft or dishonesty.
• Fiduciary liability insurance protects the people responsible for managing the plan from claims of mismanagement or breach of duty.

Both are essential. One is a legal requirement, and the other is a prudent safeguard that protects your company and its leadership.

Who Needs Fiduciary Liability Insurance?

Any company that offers employee benefits assumes fiduciary responsibilities. That includes startups and growth-stage companies providing 401(k) plans, stock ownership programs, or group health and life insurance plans.

Fiduciary duties often extend beyond executives. HR professionals, plan administrators, trustees, and even investment committee members may all be considered fiduciaries under ERISA.

Even if a third-party administrator manages day-to-day plan operations, your company remains responsible for selecting and monitoring that vendor and can still be held liable for their errors.

Companies that want to attract and retain top talent through strong benefit offerings should view fiduciary liability insurance as a key protection that enables that growth.

How Much Fiduciary Liability Coverage Do You Need?

There’s no single formula for how much fiduciary liability insurance to buy. The right limit depends on your company’s size, benefit plan structure, and risk profile. Common considerations include:

• Plan assets and size: Larger plans present greater potential losses if mismanaged.
  
• Number of participants: More employees means higher potential for class actions.‍
• Plan type and complexity: ESOPs or pension plans tend to carry more risk than simple 401(k) plans.
• Governance and oversight: Companies with formal investment policies and third-party advisors may be viewed as lower risk.
• Claims history: Any past ERISA violations or regulatory inquiries can affect recommended limits.

Most companies work with a broker to benchmark limits against peers of similar size and industry. 

Learn more about how much Fiduciary Liability Insurance you need.

How Much Does Fiduciary Liability Insurance Cost?

Pricing depends on several factors, including:

• The size and total assets of your benefit plans
• The number of plan participants
• Your company’s claims or compliance history
• The coverage limit and deductible you choose
• The strength of your plan’s governance and oversight practices

Insurers often look favorably on companies with clear fiduciary training programs, independent audits, and strong vendor management. 

Learn more about how much Fiduciary Liability Insurance costs.

Common Fiduciary Liability Claims

Claims can arise from both employee lawsuits and regulatory enforcement actions. Frequent examples include:

• Administrative mistakes: An HR team fails to enroll a new hire in the health plan, leading to uncovered medical expenses and a resulting lawsuit.
• Excessive fee litigation: Employees claim their 401(k) plan has unreasonably high administrative or investment fees.
• Improper denial of benefits: An employee’s coverage is incorrectly terminated or a claim denied due to processing errors.
• Investment mismanagement: Fiduciaries are accused of imprudent investment decisions that deplete retirement funds.
• Regulatory enforcement: The Department of Labor investigates late 401(k) contribution deposits or plan mismanagement and imposes penalties.

Without coverage, even defending these claims can strain company resources. Fiduciary liability insurance ensures your business and leadership have the financial backing to respond effectively.

How to Buy Fiduciary Liability Insurance

Fiduciary liability insurance is available as a standalone policy or bundled with other coverages such as Directors & Officers (D&O) and Employment Practices Liability (EPLI).

For startups and growth-stage companies, bundling often provides more complete protection and cost efficiency.

Brokers like Vouch make it simple to secure fiduciary coverage in minutes, with streamlined applications and no long underwriting process for smaller plans.

When comparing options, consider:

• Whether fiduciary limits are separate or shared with D&O/EPLI coverage
• If defense costs are inside or outside your policy limits
• Whether regulatory penalties and correction fees are included
• The insurer’s experience in handling fiduciary liability claims

Fiduciary Liability vs. Other Business Coverages

Understanding how these coverages work together ensures there are no gaps in protection for your leadership or your company.

Fiduciary liability insurance helps businesses meet their legal obligations while protecting against the unpredictable risks of managing employee benefits. It shields your company and fiduciaries from costly litigation, helps demonstrate compliance with ERISA, and gives you confidence that mistakes won’t put your business or your team’s financial wellbeing at risk.

As your company scales and your benefit offerings grow more complex, fiduciary liability coverage becomes an essential part of a broader risk management strategy.

Frequently Asked Questions

Is Fiduciary Liability Insurance required by law?

No. ERISA allows plans to purchase fiduciary coverage as a safeguard, but it’s not mandatory.

Who qualifies as a fiduciary?

Anyone with decision-making authority over a benefit plan, including executives, HR staff, and plan trustees.

Does my ERISA bond cover fiduciary liability?

No. ERISA bonds cover theft or fraud of plan assets, not errors, omissions, or mismanagement.

When should I purchase Fiduciary Insurance?

As soon as your company offers any employee benefit plan such as a 401(k) or group health insurance.

Can I buy Fiduciary coverage with other insurance?

Yes. Many companies purchase Fiduciary Liability with D&O and EPLI coverage for streamlined protection.

Vouch Specialty Insurance Services, LLC (CA License #6004944) is a licensed insurance producer in states where it conducts business. A complete list of state licenses is available at vouch.us/legal/licenses. Insurance products are underwritten by various insurance carriers, not by Vouch. This material is for informational purposes only and does not create a binding contract or alter policy terms. Coverage availability, terms, and conditions vary by state and are subject to underwriting review and approval.