Companies often offer employee benefit plans to help attract and keep employees. Companies need to be aware of the liability exposure created from the management of these plans.

As a requirement of the Employment Retirement Security Act (ERISA), a fiduciary of an employee benefit plan must act in the best interest of the participants and beneficiaries. Under ERISA, a Trustee/Fiduciary can be held personally liable for the companies Retirement Plan, or Welfare Plan (including medical, dental, life and disability).

Fiduciary Liability Insurance helps protect personal assets, and provides defense for the legal liability arising from claims for alleged failure to act prudently. Fiduciary Liability Insurance is not required by ERISA, but every company that offers any type of employee benefits plan should carry this insurance which is readily available.

A Fidelity Bond is a form of insurance for dishonest situations. When dishonest administrators or trustees have financially harmed an employee benefit plan, these bonds may be used, but only for the benefit of the plan and the plan’s beneficiaries. This bonding insurance will not protect the trustees themselves from liability claims and is completely distinct from fiduciary liability insurance.

ERISA requires that qualified retirement plans have a fidelity bond to cover at least 10% of the total value of plan assets (calculated at the beginning of the plan year), with a minimum bond requirement of $1,000 and a maximum bond requirement of $500,000 ($1 million for a plan that holds employer stock). This bond should be obtained through an insurance broker, and this requirement is not waived for any reason. Fidelity Bonds can be purchased individually or can be added as an optional coverage to a Business Owners Policy (BOP).

Note: A one-participant plan, which is a plan that covers only the sole owner of the sponsoring business, the sole owner and his or her spouse, or partners in the sponsoring partnership and their spouses, is not subject to ERISA, and therefore has no bonding requirement.

HCP National is not a law firm and does not provide legal advice. We are an insurance brokerage and risk manager. We encourage everyone to consult with their own attorney, certified public accountant and tax professional on any issues involving specific facts, persons, circumstances or situations.