ERISA

Plan Fiduciaries Must Make “Prudent” Investments to Avoid Liability

08.12.2019

Employee benefit plan fiduciaries have an obligation to make prudent investments to avoid a breach of fiduciary duty. Fiduciaries are personally liable for those damages the imprudent investments caused to plan participants. This is one of the simpler ERISA plan fiduciary duties to meet, as allowing participants to diversify their investments with options such as index funds.

Plan fiduciaries must meet the requirements of ERISA section 404(c) to offer the required prudent investments in a wide range of the market to plan participants. Stock, bond, and money market index funds can meet this requirement fairly easily.

However, if you try to invest your plan in something like penny stocks or initial product offerings (IPOs), you run the risk of having your investments being called imprudent. You may really think that investing in a specific company can give you Apple investment type returns, and if it works, you will have provided greater returns to your plan participants. But if that IPO fails, as many do, you will be held personally liable for the loss by investing with them. If something like a mutual fund fails, that would be unexpected and still considered prudent. But if something risky like an IPO does, you will be held personally liable for a breach of fiduciary duty.

Fiduciary liability insurance protects you against charges of imprudent investment!

Where the ERISA fidelity bond is set in place to protect the participants of the plan it, however, does not protect YOU as the fiduciary.

Colonial Surety Company is a Treasury Listed surety company providing ERISA fidelity bonds packaged with fiduciary liability insurance which includes cyber liability insurance at no extra cost. Colonial is one of the leading providers of ERISA related products, offering bonds approved by the Dept. of Labor. We make it easy to obtain your bond instantly as well as allowing you to purchase retroactive insurance for the years the plan was not previously covered.

Under ERISA, fiduciaries may be held personally liable for a breach of their responsibilities in the administration or handling of employee benefit plans. Under ERISA 410, the plan cannot relieve you of this responsibility with indemnification language, however, it specifically permits persons with personal liability to purchase fiduciary liability insurance. Covering yourself with fiduciary liability insurance gives you a piece of mind that you are protected. Learn how to bundle your ERISA bond and fiduciary liability insurance for a discounted rate.

If you would like to learn more about purchasing an ERISA fidelity bond, or an ERISA fidelity bond package including fiduciary liability insurance, call 888-383-3313 or email ERISADept@colonialsurety.com. Learn more about becoming a Pension Professional Partner here.