What kind of liability coverage and insurance are available to cover a 401(k) Plan?

 

There are three types of insurance policies you can utilize to cover your liability in operating a 401(k) Plan. The fidelity bond coverage is required, the other two are optional. We recommend carrying all three to minimize your liability and maximize your protection. Here is a summary of all three.

Fidelity Bond

An ERISA fidelity bond is required for every plan. A Fidelity Bond protects ERISA plan participants from theft or embezzlement of plan assets. The policy must cover 10% of plan assets up to a $500,000 maximum.

Employee Benefits Liability

Employee Benefits Liability (EBL) coverage generally insures against administrative errors involving benefit plans like a 401(k). It generally does not provide coverage for fiduciary acts. EBL coverage is usually included in your commercial general liability policy. Check to see if that endorsement is included in yours.

Fiduciary Liability

Generally, a Director and Officers (D&O) policy will specifically exclude coverage for ERISA fiduciary acts.  Therefore, a fiduciary liability rider to the D&O or a standalone policy is what is usually necessary to close the gap for fiduciary acts.  Some ERISA fiduciary liability policies also provide, in addition to the fiduciary protection, the administrative errors coverage provided in what you normally see in the EBL coverage. 

Every insurer is different. It is important to work with your insurance provider to make sure you have the coverage you need.

Please reach out to Pacific Retirement Partners if you have any questions.