Benefit plan liability - ForeFront Plus
Chubb Specialty Insurance

PURPOSE: To insure pension schemes and other benefit plans, trustees thereof, corporate trustees, companies, directors, officers and employees for defence costs and legal liability incurred on account of claims and prosecutions against them for wrongful acts, errors or omissions in respect of the operation of benefit plans. Also to insure them for representation costs in benefit plan-related investigations of them by regulators.

Key cover features

• Automatic cover for all the group plans outside the USA (optional cover available for USA plans)
• Insured persons include internal dispute decision makers of benefit plans
• Contribution notices: insured persons protected
• Overpayments by benefit plan covered when the trustee’s wrongful act is exonerated
• Cover for civil fines and penalties imposed by the Pensions Regulator and the Pensions Ombudsman
• Missing beneficiary claims covered
• Protection for stakeholder pension scheme obligations
• Court attendance and staff disruption costs: compensation to policyholder (subject to sublimit)
• Automatic 12 year ERP for retired insured persons
• Advancement of defence costs as and when incurred
• Emergency defence costs can be incurred without Chubb consent
• The policy can never be avoided or rescinded for misrepresentation or non-disclosure (not even if it is fraudulent). Cover limitations only for those individuals who knew of the non-disclosed or misrepresented facts and for organisations where particular persons knew
• Wrongful acts during winding-up of a plan are covered
• Free consultation with well-known law firm via “ForeSight from Chubb” trouble-shooting telephone hotline (subject to time limits)

Here are a few examples of when you may need pension liability cover:

Stock market rise
After the sale of a company subsidiary, the pension trustees were tasked with transferring the funds into a new pension fund. According to the rules, the amount sent over had to be such ‘as the trustees, after consulting with the actuary, decide to be just and equitable’. They consulted the actuary but before the transfer date the value of the fund was enhanced by a strong stock market rise. The trustees did not take this into account and were subsequently sued by the scheme members.

Loan and liquidation – trustees personally liable after insolvency
Trustees loaned pension fund assets to the sponsoring employer who then went into liquidation and could not repay. They faced personal liability for the lost £5,000,000.

Borrowing from the fund assets
When a newly acquired subsidiary came into financial difficulties, the directors and scheme trustees of a private company borrowed funds from the pension scheme to help the subsidiary out. The loan was repaid in the form of shares in other group companies. The value of these shares subsequently plummeted and the scheme beneficiaries were sued for fraud, maladministration and a £3,000,000 shortfall.

Misstatement of Benefits
Trustees mistakenly overstated an employee’s pension entitlement with the result that the employee believed he could not make additional voluntary contributions. The error came to light following a pension transfer in a corporate restructuring. The trustees were directed to compensate the employee for loss of investment returns and for emotional distress. It was no defence to assert that the complainant should have realised the mistake.

Delayed information
An employee, on redundancy, was entitled to have his pension transferred out of the company scheme. The professional administrators and assisting trustees gave the employee late and inadequate information regarding this. The error and delay, compounded by stock market movements, constituted maladministration.