Any business that sponsors a 401(k) or employee benefit plan has someone serving as plan fiduciary — and under ERISA, fiduciaries can be held personally liable for how the plan is managed. Most don't have coverage for it.
Any business that sponsors an employee benefit plan — a 401(k), a health plan, a pension — has someone serving as plan fiduciary. Often that's the business owner or HR director. And under federal law, fiduciaries can be held personally liable for how the plan is run.
What Fiduciary Liability Covers
ERISA, the federal law governing employee benefit plans, holds fiduciaries to a high standard of care — prudent investment selection, timely contribution remittance, accurate disclosures, and adherence to plan documents. When a plan participant claims a fiduciary fell short of that standard, the lawsuit can target the individual responsible, not just the plan itself.
Fiduciary liability insurance covers defense costs and settlements for claims that a plan fiduciary breached their duties — including mismanagement of plan assets, administrative errors, improper investment options, and failure to follow the plan.
Who Carries This Risk
Any employer that sponsors a benefit plan with employee contributions has potential fiduciary exposure. That includes businesses with a small number of employees if they offer a 401(k) or group health plan.
The exposure increases with complexity and change. A business that recently switched investment options, changed plan providers, or experienced any delays in remitting employee contributions has a higher-risk profile. So does any plan where the owner is also the sole administrator — there's no institutional backstop when something goes wrong.
The Gap in Most Business Insurance Programs
Neither a BOP nor a general liability policy covers fiduciary claims. D&O liability covers business decisions made on behalf of the company; fiduciary liability covers decisions made on behalf of a benefit plan. They're separate exposures requiring separate coverage.
Ask your clients who sponsor benefit plans: do they have fiduciary liability coverage? Most don't know, and most don't have it — which means the person managing their 401(k) is personally exposed to claims they've probably never considered.