If you are a fiduciary for a business that offers benefits for its employees, you have a responsibility by law to serve the best interests of the employees you represent. That is a serious responsibility, no matter how large or small the business in question may be.
Wherever there are employees who are provided benefits, a fiduciary exists. A fiduciary is not necessarily one person: for small businesses, the fiduciary could be the employer. For large businesses, the fiduciary could be the company’s director, plan administrators, officers, or trustees.
Some people might not even be aware that they have fiduciary duties as governed by law. In that case, the company itself might not know the severity of consequences when something concerning employee benefits goes wrong.
A company’s fiduciary has a serious responsibility to the extent that the company and the fiduciary can be held seriously liable if anything that has to do with employee benefits is mismanaged or poorly administered.
It is critical that every business, big or small, along with every individual with fiduciary duties, understands fiduciary responsibilities and why fiduciary liability insurance is necessary.
What Is a Fiduciary?
A fiduciary is a person or entity appointed by a company to manage the company’s benefit plan for employees, which includes company assets upon which those benefits depend. In addition, any person or entity with the authority to make decisions about the management of the plan or the handling of assets is considered to have fiduciary duties.
Note that a person does not have to carry the title of company fiduciary to have fiduciary responsibilities. A fiduciary will choose company advisers, decide on and oversee investments, manage expenses, and follow the benefit plan as set forth by the company.
Is There Any Law in Place to Regulate Fiduciary Responsibilities?
A federal law passed in 1974, the Employee Retirement Income Security Act (ERISA), protects employees from being shorted their benefits as promised by the company they work for. ERISA does not force companies to have a benefit plan for its employees, rather it assures that companies will provide the benefits to their employees as promised.
In addition to making businesses and their fiduciaries liable, ERISA requires businesses to invest in a fidelity bond that equals at least ten percent of their employee benefit plan’s assets. The bond protects the assets from fiduciaries who mismanage the funds that make the benefits possible.
What Is a Typical Benefit Plan?
It is a standard assumption in the workforce that companies that offer a benefit package attract more serious and qualified employees. A quality employee benefit plan has two basic categories: welfare and retirement.
Although welfare benefits may vary from company to company, they typically include medical and dental coverage, disability and life insurance, and paid time off. Retirement plans may include a pension, 401(k), stock options, or profit sharing.
What Does Fiduciary Liability Insurance Cover?
Fiduciary liability insurance protects companies when there has been a breach of fiduciary duty. A breach of fiduciary duty is a serious infraction that can result in a lawsuit against a company and any individual with fiduciary responsibilities.
A fiduciary liability insurance policy covers a wide range of errors considered a breach of duty, including improper advice, wrongful denial of benefits, improper change of benefits, poor choosing or overseeing of the plan’s service provider, errors in administering the plan, and the mismanagement of the plan’s assets.
A company’s assets are at risk when a claim is made against it. The same goes for any individual mentioned in a lawsuit. A fiduciary liability insurance policy is a safeguard in those respects. These policies also cover legal costs, which can be expensive.
It is important for a business, big or small, to understand how it can protect its assets and the people who work to safeguard them. That is why every company should consult an experienced business lawyer before or after a fiduciary problem arises.
Plainfield Insurance Lawyers at Herold Law, P.A. Represent Those with Fiduciary Responsibilities.
If you have been accused of mismanaging a company’s benefit plan or assets, you need a serious, competent lawyer. Our experienced Plainfield insurance lawyers at Herold Law, P.A. will work hard to protect your business or personal assets. Call us at 908-647-1022 or contact us online. Located in Warren, New Jersey, we represent clients in Warren, Plainfield, and throughout New Jersey.