Management Liability FAQs

What is fiduciary liability insurance and why does a Georgia company with a 401k need it?

All FAQs

Quick answer: Fiduciary liability covers plan administrators and the company from claims by plan participants that the 401k or pension plan was mismanaged.

Fiduciary liability insurance protects the people who manage your company’s employee benefit plans, such as a 401k, against claims that they mishandled those plans. A Georgia company with a 401k needs it because federal law makes plan decision-makers personally responsible for their choices, and that personal liability is not covered by most other business policies.

A fiduciary is anyone with authority over a benefit plan, including owners, executives, and HR staff who select investments, choose vendors, or decide who is eligible. Under the federal law known as ERISA, which sets the rules for employee benefit plans, fiduciaries can be held personally liable for losses caused by their decisions. That means personal assets, not just company funds, can be on the line.

Here is what fiduciary liability insurance typically covers:

  • Claims of imprudent investment choices, such as offering funds with excessive fees.
  • Administrative errors, like enrolling an employee late or miscalculating a benefit.
  • Breach of fiduciary duty allegations brought by employees or regulators.
  • Legal defense costs, which can be significant even when the company believes it did nothing wrong.

Many owners confuse this with the bonding requirement under ERISA. An ERISA fidelity bond protects the plan against theft of its assets, and it is required by law. Fiduciary liability insurance is different. It protects the decision-makers against claims about their judgment, and it is optional but strongly recommended.

For example, employees at a Georgia manufacturer file a claim arguing the 401k offered high-fee funds that quietly drained their retirement savings. The defense alone costs $90,000. Fiduciary liability insurance would respond to defend the company’s leaders and pay covered amounts, while the owners’ personal assets stay protected.

If your company sponsors any retirement or health plan, this coverage deserves a look. We can review your benefit plans and recommend the right limits. Request a free coverage review and we will help you protect the people who manage your plans.