Fiduciary liability insurance protects people who manage employee benefit plans from lawsuits. These lawsuits usually claim that the plan was poorly managed or handled incorrectly.
This insurance pays for:
- Legal defense costs
- Settlements
- Court judgments
It applies to benefit plans such as 401(k) retirement plans, pensions, and health benefits. Under ERISA law, fiduciaries can be held personally responsible, which makes this coverage very important.
What Fiduciary Liability Insurance Covers and Who It Protects
This insurance focuses on breaches of fiduciary duty, such as:
- Poor investment decisions
- Enrollment or eligibility mistakes
- Failing to properly manage or diversify plan assets
It protects:
- The company sponsoring the plan
- Trustees
- Plan administrators
- HR staff
- Investment committee members
Even if a claim turns out to be false, the policy still pays for legal defense costs.
Settlor Decisions Are Often Covered
Many policies also cover settlor functions, such as:
- Changing a plan
- Freezing a plan
- Ending a plan
Although ERISA usually says these are not fiduciary acts, lawsuits often still claim they are. Fiduciary liability insurance helps defend against those claims.
Defense costs are paid first, no matter the final outcome. If losses occurred because of poor oversight, the policy can help repay affected employees.
Coverage limits usually range from $1 million to $10 million, with $5 million being common for mid-sized companies.
This insurance is different from Directors & Officers (D&O) insurance. D&O covers general management decisions, while fiduciary liability insurance focuses only on benefit plans.
Common Claims This Insurance Covers
The most common claims include:
- Wrongful denial of benefits
Employees sue because benefits were denied due to administrative errors. - Poor investment performance
Employees claim losses when 401(k) investments perform badly due to poor choices. - Enrollment mistakes
Examples include enrolling ineligible employees or failing to explain eligibility rules. - Regulatory investigations
Coverage often includes Department of Labor (DOL) or IRS investigations and related fines (as long as they are not criminal).
Example:
A company selects high-fee investment funds. Employees sue, claiming they paid too much in fees. The insurer pays legal costs and helps fund a settlement.
Administrative mistakes such as incorrect COBRA notices or poor record-keeping are also covered.
However, fraud or theft is not covered under this policy. That is handled by ERISA fidelity bonds.
Key Exclusions and Policy Limits
Fiduciary liability insurance does not cover everything.
Not covered:
- Intentional wrongdoing
- Theft or embezzlement
- Self-dealing
ERISA fidelity bonds cover dishonest acts, but they protect the plan, not the individual.
Other exclusions include:
- Labor disputes
- Pollution claims
- Non-benefit-plan business issues
- Bodily injury claims (handled by general liability insurance)
Most policies are claims-made, meaning the claim must be reported while the policy is active. If coverage ends, you may need tail coverage to protect against future claims from past actions.
Coverage Table
| Coverage Element | What Is Covered | Typical Exclusions |
| Defense Costs | Legal fees, even if claim has no merit | Criminal acts, fraud |
| Breach Damages | Employee losses caused by negligence | Intentional wrongdoing |
| Settlor Acts | Claims tied to plan changes or termination | Non-ERISA violations |
| Admin Errors | Enrollment, notices, record mistakes | Issues before policy start (without tail) |
| Investigations | DOL or IRS reviews | Criminal probes, excess fines |
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Cost and What Affects Premiums
Premiums depend on plan size, risk level, and past claims.
- Small businesses: $2,000–$5,000 per year for $1M coverage
- Larger businesses: $10,000–$50,000+ per year
Main pricing factors:
- Total plan assets
- Number of employees
- Type of plan (401(k), pension, ESOP)
- Claims history
Bundling fiduciary liability with D&O insurance can reduce costs by about 20%.
High-risk plans, such as self-directed 401(k)s, can raise premiums by 30%.
Clean claim histories can reduce costs by around 10%.
Deductibles usually range from $10,000 to $50,000. Higher deductibles lower premiums.
Cost Table
| Plan Size (Assets) | Annual Premium Range | Main Risk Factors |
| Under $10M | $1,500–$4,000 | Simple benefit plans |
| $10M–$100M | $5,000–$15,000 | Standard 401(k) plans |
| Over $100M | $20,000+ | Complex or pension plans |
Choose insurers with strong ratings (AM Best A+), such as Chubb, Travelers, or Hartford.
Why Businesses Need This Insurance (Even Though It’s Not Required)
ERISA does not require fiduciary liability insurance, but it does allow personal liability. Without coverage, fiduciaries may have to pay out of pocket.
Key risks:
- DOL lawsuits often exceed $1 million
- Class-action lawsuits can grow very large
- Nonprofits face donor and board scrutiny
- ESOP trustees face higher exposure
After DOL audits, fiduciary claims increase by about 25%.
Fiduciary liability insurance works best when paired with ERISA fidelity bonds, which are legally required and must equal 10% of plan assets. Together, they provide full protection.
Filing a Claim and Best Practices
If a claim or investigation occurs:
- Report it immediately
- The insurer assigns a lawyer
- Do not admit fault
- Settlements must be approved by the insurer
Appeals may also be covered if they are reasonable.
To reduce risk:
- Provide annual fiduciary training
- Use independent audits
- Hire third-party administrators
- Keep clear records of decisions
Meeting notes from investment committees help prove good decision-making.
In 2025, new risks are emerging, including lawsuits related to AI-based investment advice.
FAQ: Fiduciary Liability Insurance
Is fiduciary liability insurance required by ERISA?
No, but fiduciaries can be personally sued without it.
Does it cover fraud or theft?
No. ERISA fidelity bonds cover theft; fiduciary insurance covers negligence.
How is it different from D&O insurance?
D&O covers company leadership decisions. Fiduciary insurance covers benefit plans only.
How much coverage is recommended?
At least $1 million. Higher assets and more employees need higher limits.
Does it cover plan changes or termination?
Yes, settlor decisions are usually covered.
What does it cost for small businesses?
Around $2,000–$5,000 per year.
Does it protect individuals personally?
Yes. It can protect personal assets if the company cannot pay.
