September 2013: Protecting Fiduciaries

By September 23, 2013 Business Monthly Email

516BENEFIT PLANS

Not sure if you offer plans subject to ERISA…..following is a summary to assist you in determining:

Plans ‘Not’ Subject to ERISA

  • Workers Compensation, Unemployment Compensation, Disability Insurance
  • Plans maintained outside of US primarily for non resident aliens.
  • Unfunded plans maintained solely to provide benefits for certain employees in excess of limitations imposed on benefits and contributions for tax purposes.
  • Plans of federal and state governments and political subdivisions and agencies
  • Church Plans

Plans Subject to ERISA

  • Pension
  • Profit Sharing
  • Thrift and Savings (401k)
  • Employee Stock Ownership (ESOP)
  • Tax Reform Act Stock Ownership (TRASOP)
  • Welfare
  • Group Life and AD&D Insurance
  • Group Medical Insurance
  • Prescription Drug
  • Group Dental & Vision Care Insurance
  • Group Long Term care Insurance
  • Group Travel Accident Insurance
  • Group Disability Income
  • Health Reimbursement and Flexible Spending Accounts
  • Scholarship
  • Supplemental Unemployment
  • Prepaid Legal Services
  • Some Severance Pay
  • Vacation and Holiday

Requirements of Plans Subject to ERISA

Plans subject to ERISA must:

  • Be maintained pursuant to a written instrument
  • Provide a procedure for establishing and fulfilling a funding policy
  • Describe responsible parties for operation, administration, fiduciary duties
  • Provide a procedure for and identify the parties who can amend the policy
  • Describe the basis for payments made to and from the plan

 FIDUCIARY RESPONSIBILITIES

ERISA Standard of Care of Fiduciaries

ERISA dictates that fiduciaries must:

  • Discharge duties with respect to a plan, solely in the interest of the plan’s participants and beneficiaries
  • Discharge their duties with the care, skill, prudence and diligence under the circumstances that a prudent man acting in a like capacity and familiar with such matters would use
  • Diversify investments of the plan so as to minimize risk of large lossess unless prudent not to do so
  • Discharge their duties in accordance with documents and instruments governing the plan

ERISA 404(c)

A fiduciary is protected against liability for investment losses arising from allocation choices in employee directed retirement plans as long as the following requirements are met:

  • Participants can allocate funds among a minimum of 3 investment choices with substantial different risk and return characteristics
  • Each core investment alternative is sufficiently diversified
  • Participants can transfer from or among investment alternatives at least once every 3 months or with a frequency that is appropriate to each fund’s risk level
  • Participants receive sufficient information to make informed decisions about the plan’s investment options

In addition to complying with these items, a fiduciary must always prudently select investment alternatives that are available to participants, monitor the investment performance of these, and perform the participant’s investment instructions.

INSURANCE PROTECTION

Often there is confusion among the ERISA insurance related products – ERISA Bond, Employee Benefits Liability, and Fiduciary Liability – that can be purchased to protect both your business and your fiduciaries:

ERISA bonding protects against a fiduciary’s illegal appropriation of funds from an employee benefit plan.  This may be a separate bond or endorsed to an Employee Dishonesty coverage.

Employee Benefits Liability coverage, usually endorsed to your general liability package, extends coverage for claims involving nondiscretionary, administrative errors with employee pension and welfare plans. (i.e. failure to name an intended beneficiary on a life insurance policy, failure to enroll an employee in health plan or 401k plan,   etc.)

Fiduciary Liability

Insurance protects against claims alleging the breach of duties imposed by ERISA and by common or statutory law (i.e. failure to invest prudently, failure to select a qualified service provider to a covered plan, etc.).  This coverage extends protection to both the corporate entities that sponsor the plans as well as the individual(s) that serve as fiduciaries.   It provides for compensatory awards, settlement costs, defense expenses, etc.)   Most fiduciary policies also extend to administrative errors eliminating the need for a separate Employee Benefits coverage.   As well, they can usually be endorsed to cover bodily injury, sickness, disease, or death when results from administration of managed care health plans.

How We Can Help You…

As your Trusted Advisor, we can assist you in identifying your fiduciary exposures and securing the needed insurance products to comply with your legal requirements and to protect both your business assets and those of your dedicated employees (fiduciaries).   We can also assist you with tools to educate your fiduciaries on their responsibilities and personal liability exposure.

Contact us immediately if you are providing any of the indicated pension or benefit plans.

800 – 95 – TOOLE
riskmanagement@tooleinsurance.com

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