I am a small business owner sponsoring a 401k retirement plan. Are my personal assets at risk? What kind of coverage can I get with Fiduciary Liability Insurance and how does it differ from the required ERISA Fidelity Bond?

Fiduciary responsibilities are dictated by the standards of ERISA (The Employee Retirement Income Security Act) and other IRS/DOL guidelines. ERISA requires every person who “handles funds or other property” of an employee benefit plan to be bonded with an ERISA Fidelity Bond to insure the plan against losses due to fraud or dishonesty. Fiduciary Liability Insurance typically insures the fiduciaries (and in some cases the plan) against losses caused by a breach of fiduciary responsibility. Fiduciaries are personally liable for losses incurred by a plan due to their breach. Although fiduciary liability insurance isn’t required by ERISA, as is a bond, every fiduciary of an ERISA can obtain coverage as a safety net. The coverage provided in a policy can differ significantly. The plan itself can purchase liability insurance for its fiduciaries or the employer and/or fiduciary can purchase. Executives who are expected to assume responsibility over the company’s benefit plans should consider incorporating fiduciary liability insurance as part of their overall compensation package.

The Department of Labor (DOL) has developed a comprehensive overview of Erisa Fidelity Bonds and bonding requirements entitled Protect Your Employee Benefit Plan With An ERISA Fidelity Bond.

ERISA Fidelity Bond vs. Fiduciary Liability Insurance