Fiduciaries of employee benefit plans are expected to act in the best interests of the plan participants. Under the Employee Retirement Income Security Act of 1974 (ERISA), if this duty is compromised, either intentionally or unintentionally, fiduciaries can be held personally liable for losses. Any employee who has discretionary authority over a plan or who assists in its administration can be a fiduciary and thus be exposed to liability. This list of individuals might include an appointed fiduciary, a plan administrator, a human resources employee, or any employee who helps to administer a plan.
ERISA also broadly defines the types of employee benefit plans for which fiduciaries are responsible, including pension plans and even health and welfare plans. These days, people who perceive that they have been wronged often react by filing lawsuits that can be extremely costly to defend and settle. This makes fiduciaries potential lightning rods for liability; particularly in light of the amount of money that is held in retirement plans today, the valuable protection that those plans afford to their participants, and recent efforts by many organizations to reduce participants’ retirement benefits. Moreover, designated fiduciaries are not the only targets of such lawsuits; targets can also include the employer and even the plan itself. Claims can be brought by:
- Plan participants
- Participants’ legal estates
- Department of Labor (DOL)
- U.S. Pension Benefit Guaranty Corporation
The most frequently alleged claims against fiduciaries include:
- Denial or change of benefits
- Breach of responsibilities or fiduciary duties imposed by ERISA
- Administrative error
- Negligence in the administration of a plan
- Wrongful termination of a plan
- Failure to adequately fund a benefit program
- Cash balance plan conversions
Health care organizations can reduce the liability exposure to their fiduciaries by employing good loss prevention procedures, such as seeking and following the advice of independent experts; selecting diverse, financially sound investments; and so on. However, they cannot entirely eliminate their fiduciaries’ personal liability. Chubb’s Health Care Portfolio Fiduciary Liability insurance coverage helps fill the gaps.