Fiduciary status is based on the functions performed for the company’s plan. A fiduciary is anyone who exercises discretionary authority over plan assets, which includes having control over plan management, or having authority over administration. For example, an officer of a company could be considered a fiduciary by reason of the fact that he or she signed a benefits check distributed to personnel. In fact, anyone having anything to do with pension, savings, profit sharing, employee benefit, and health/welfare plans is liable to the beneficiaries for any breach of their fiduciary duties.
One of the main duties of a fiduciary is that he/she must discharge his or her duties with regard to the plan (solely in the interests of the plan participants) for the purpose of providing benefits to plan participants and their beneficiaries. Failure to carry out any one of the duties identified by ERISA can result in liability. Plan participants, beneficiaries, healthcare providers, and the government can hold fiduciaries liable for failing to exercise prudence in selecting plan vendors or investment options.
Fiduciary status includes some pertinent risks
Common risks for fiduciaries include being accused of failing to diversify plan assets, selecting more expensive plan options, and failing to follow the terms of the plan documents. Beyond traditional ERISA exposures, the Patient Protection and Affordable Care Act (PPACA) has added another level of exposures for fiduciaries; Section 1514 requires large employers to report whether full-time employees are offered minimum essential health insurance coverage or face a $100 per person penalty.
Agents can add tremendous value for customers with this exposure by helping them understand the penalties that are assessed under these acts in the event of a claim for breach of fiduciary duty. Given the myriad of duties it imposes, the establishment of personal liability for those serving as fiduciaries, and the overall complexity of ERISA, going without insurance can certainly be a risk not worth taking.
That is why it’s so important for agents to take the time to fully educate clients about the risks that are at stake. If somewhere down the line things go wrong, clients will be thankful agents assisted them in procuring fiduciary liability insurance, which goes a long ways towards helping them to protect their bottom line.