BEWARE: Your Personal Assets May Be Exposed

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Could you be personally responsible for the mismanagement of your employee’s benefit plans?

If your company sponsors an employee benefits plan, and if you have responsibility for or are involved in any way with the management of that plan, then you are most likely considered a fiduciary and may have more liability than you realize. Under ERISA law, as a fiduciary, you are putting your personal assets at risk if an employee files a lawsuit related to their benefit plans due to a breach of duty.

According to Seyfarth Shaw’s Workplace Class Action Report, The 10 largest ERISA class action settlements exceeded $1.75 billion in 2016. These lawsuits are very real and can cost millions of dollars to defend and settle. So how do you know who is a fiduciary and how do you ensure that employee benefits are handled responsibly while protecting the fiduciary and their personal assets?

Understanding who is a fiduciary?

Under the Employee Retirement Income Security Act (ERISA), any individual who manages an employee benefit or pension plan is considered a fiduciary. This encompasses the plan sponsor, trustees, plan administrator, investment manager, consultants, and actuaries, to name a few. A fiduciary’s status is based upon the functions performed, not just the person’s title. Fiduciaries have important responsibilities and are subject to higher standards of conduct because they act on behalf of participants in a retirement plan and their beneficiaries. If a plan participant sues for a breach of fiduciary duty, a fiduciary, on an individual level, may be personally liable to restore any losses, thus putting their personal assets at risk.

What are the responsibilities of a fiduciary?

Fiduciaries have important responsibilities and are subject to standards of conduct because they act on behalf of participants in a group health plan and their beneficiaries. These responsibilities include:

  • Acting solely in the interests of plan participants and beneficiaries
  • Carrying out their responsibilities prudently
  • Following plan documents
  • Holding plan assets if the plan has any in trust
  • Paying only reasonable plan expenses

The duty to act prudently is one of a fiduciary’s primary responsibilities under ERISA. It requires expertise in a variety of areas. A fiduciary may want to hire someone with that professional expertise and knowledge to carry out those functions. Prudence is centered around the process for making fiduciary decisions. Therefore, it is wise to document decisions and details on the basis for those decisions.

What are the consequences of a fiduciary breach?

In addition to being held personally liable for a fiduciary breach, you may also have to restore plan losses.  The Department of Labor will assess a civil penalty against you and depend on the case, you may be subject to criminal penalties.

How can you protect yourself from a lawsuit?

The only way to protect your financial assets against lawsuits regarding employee benefit plans is with Fiduciary liability insurance.  It will defend and pay, where required, for the settlement and judgments arising out of the employee benefit plans that are governed by the ERISA statute.

Do not confuse Fiduciary Liability Insurance with a Fidelity bond.  Fidelity bonds are required by ERISA and only protect the plan against dishonest acts, not mistakes or breaches of duty.  Without having fiduciary liability insurance, fiduciaries may be forced to pay out of their own pockets to make good to plan losses resulting from a breach.

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About Marsh & McLennan Agency – Marsh & McLennan Agency LLC, a subsidiary of Marsh, was established in 2008 to meet the needs of midsize businesses in the United States. MMA operates autonomously from Marsh to offer employee benefits, executive benefits, retirement, commercial property & casualty, and personal lines to clients across the United States.