What is ERISA, and what is a fiduciary?
ERISA stands for the Employee Retirement Income Security Act. It is a federal law that sets minimum standards for retirement plans in private industry to protect individuals in the plan.

A fiduciary is any person involved with administering your practice's retirement plan (or other benefit plans). Under ERISA law, any fiduciary can be held personally liable for the retirement plan. A court can order the fiduciary to personally restore losses or profits made through improper handling of plan assets.

How do I protect myself?
Secure an ERISA fidelity bond, which is a legal requirement. The bond functions to pay the retirement plan for any loss from illegal appropriation of plan assets--it also protects your employees and their assets. To protect your personal and business assets, secure a fiduciary liability policy. Please note that ERISA fidelity bonds and fiduciary liability insurance are not the same. (Please also note that directors' and officers' liability policies most always exclude ERISA violation claims.)

When selecting these coverages, ask about the definition of who is covered as an insured and what is considered a loss (punitive damages?) and defense options. Also ask about risk management services for policyholders such as access to a help line for consultation with ERISA attorneys or online tools.

Do I need an ERISA fidelity bond?
Yes, you are required by law to secure an ERISA fidelity bond if you offer your employees a retirement plan. Anyone handling funds or property on behalf of an employee benefit plan must carry and ERISA fidelity bond in the amount of 10 percent of the assets of the plan. If you carry a business owner's package through the AAHA Business Insurance Program, you automatically receive $25,000 of ERISA bond coverage; however, this may not be enough.

Do I need fiduciary liability? An investment firm administers the retirement plan. How can someone sue me?
ERISA law is complex and evolving, and a fiduciary may not even be aware of all of his or her duties and responsibilities under ERISA law. An increasing number of lawsuits allege an error or omission by a fiduciary. A fiduciary liability policy will respond to allegations of breaching ERISA law such as:

  1. Failing to monitor service providers
  2. Offering inappropriate investment options
  3. Permitting excessive fees and expenses to be charged to plans
  4. Failing to administer plans in accordance with the plan documents
  5. Failing to meet regulatory and filing requirements

Even if a claim is meritless, you still have to defend yourself and prove ERISA compliance. And, using a third party to administer the plan does not eliminate your personal exposure. Fiduciary liability also responds to allegations of mishandling other employee benefit plans.

Ready for protection?
For ERISA bond or fiduciary liability quotations or for more information, contact the AAHA Business Insurance Program today at 866-380-AAHA (2242).

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