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Employee Benefits Errors… Are you Covered?

  • Do you provide health, dental, group life, or disability coverage to your employees?
  • Do you offer any retirement plan to your employees?
  • Do you offer pre-tax payroll deductions for health, dental, vision, child care reimbursement, etc?

While these are great assets for an employee to have as part of their benefit package, someone within your organization must understand the applicable laws, handle the required paperwork, and communicate clearly the details of each to your employees. As thorough and knowledgeable as the employee may be, mistakes or oversights can happen placing your company’s assets at risk.


The Employee Retirement Income Security Act of 1974 (ERISA) is a federal law enacted to help protect beneficiaries’ interests in retirement, health, and other welfare benefit plans (e.g., life, disability and apprenticeship plans) in the private sector.

ERISA requires that the fiduciary (those responsible for managing, overseeing, recommending, or handling funds or other property of an employee benefit plan) must be covered by an employee dishonesty bond also known as an “ERISA Bond”. These bonds are intended to protect the plans from dishonesty and fraud committed by individuals who are associated with them to ensure that the pension or health fund can recover some of its losses. The bond only pays if the fraudulent administrator is financially unable to meet his obligations.

The bond coverage amount required is 10 percent of the assets of each plan, subject to a minimum amount per plan of $1,000 and maximum amount per plan of $500,000 although higher limits can be purchased.

Read More:
US Department of Labor ERISA Compliance Laws

Fiduciary Claims

Fiduciaries, employers, and plans themselves can be the target of claims. Claims can be brought by plan participants or their legal estates, the Department of Labor, and the Pension Benefit Guaranty Corporation for allegations such as:

  • Improper advice or disclosure
  • Inappropriate selection of advisors or service providers
  • Imprudent investments
  • Lack of investment diversity
  • Breach of responsibilities / fiduciary duties imposed by ERISA
  • Negligence in the administration of a plan
  • Conflict of interest with regard to investments

Fiduciary Liability

An individual (or organization) is deemed a fiduciary if that person (or entity) exercise any discretionary authority or control over the management of any type of employee benefit plan. Specifically, any person responsible for the investment, control, or disposition of assets held by the plan would be considered a fiduciary.

  • Are Fiduciaries’ Personal Assets at Risk?
  • Are Fiduciaries subject to Lawsuits, Fines and Penalties?
  • Are Fiduciaries liable for acts, errors, and omissions of outside entites that provide administrative and related services for pension and benefit plans?

The answer is yes to all the above which is a startling revelation to many. ERISA’s section 410(a) places strong personal liability on any person considered a “fiduciary” under the Act’s broad definition of the term. The liability is stated as “personal” and affected persons are advised that corporate bylaw indemnification provisions are not applicable to this personal liability. The ERISA bond does NOT protect a fiduciary’s personal assets.

A Fiduciary Liability Policy provides the personal protection needed.

Read More:
Meeting your Fiduciary Responsibilities

Employee Benefits Liability

What happens if your benefit administrator fails to enroll an employee into your health program causing unpaid medical bills or erroneously calculates the amount of a pension program causing financial hardship for an employee who elected early retirement to discover the amount is considerably less?

An Employee Benefits Liability Policy covers claims such as these and others arising out of errors or omission in the administration of a benefit plan (i.e. group life and health; profit sharing and pension plans; employee stock subscription plans; disability benefits).

This coverage can often be added to your Commercial General Liability policy or written in conjunction with a Fiduciary Liability policy. It is not recommended to combine with Fiduciary Liability because employee benefits liability claims tend to be more frequent than fiduciary liability and may deplete limits needed for fiduciary claims that are less frequent but more severe.

How we can help you

The benefits that you have available to your employees can often be a key factor in both retaining your employees and attracting desired new hire candidates. The Toole Agency can assist in providing the plan benefits themselves; and offer resources to assist in navigating and understanding their applicable laws and regulations. We can provide the comfort of knowing that the assets of your plans, your business, and your fiduciaries are protected by securing the various insurance policies.

Our experienced team can help you with the risk management of these exposures by identifying your benefit plans, assessing your exposures, determining coverage gaps, offering insurance and non-insurance risk control options, and calculating costs of risk.

Contact us to begin this risk management review.