How Do Plan Sponsors Protect Themselves?

Mar 19, 2026

With the exploration of private equity and other alternative investments in 401k plans underway, plan sponsors are confronting increased uncertainty and complexity as ERISA fiduciaries. Decision making errors in the face of duties like prudence and loyalty come with the risk of being held personally accountable for losses to the plan and participants. Protection is key. Here’s what retirement plan sponsors need to know.

Know The Difference: Fiduciary Liability Insurance and ERISA Bonds

Failure to understand the difference between ERISA Bond requirements and Fiduciary Liability Insurance continues to plague retirement plan sponsors—often until it’s too late to do anything about it. Just as homeowners insurance must be obtained (and adequate) before a flood, so too, does fiduciary liability insurance need to be obtained ahead of allegations and investigations. Fiduciary liability insurance is the only form of coverage that protects retirement plan sponsors personally when faced with claims of failures in their duties. Specific examples of allegations against retirement plan sponsors include:

Decisions: Do you have the right advisor, and investment menu?
Cost control: Are the plan fees reasonable and services solid?
Compliance: Do operations adhere to the plan document, and government regulations?

At the National Association of Plan Advisors (NAPA), risk management expert, and chief insurance officer for Colonial Surety Company, Richard Clarke, points out that given the minefields ahead, fiduciary liability insurance has become more essential than ever for retirement plan sponsors:

To truly protect against the broader range of risks fiduciaries face, especially amid a rise in litigation, fiduciary liability insurance should be considered a cornerstone of risk management.Typically offered in $1 million increments, fiduciary liability insurance helps shield plan sponsors from claims of mismanagement or errors in overseeing employee benefit plans. This coverage is especially valuable because it includes both legal defense costs and potential settlements.

Although only fiduciary liability insurance provides retirement plan sponsors with protection from personal liability for breaches under the high standards of ERISA, it remains necessary for plan sponsors to also obtain an ERISA Fidelity Bond, as explicitly required by the Employee Retirement Income Security Act. With few exceptions, individuals with responsibilities for a company sponsored retirement plan are required, by law, to obtain an ERISA Fidelity Bond. Even outsourcing plan services represents decision-making on behalf of the plan, so the ERISA bond requirements remain in effect. Whereas fiduciary liability insurance protects the plan sponsor, an ERISA Bond protects the plan:

An ERISA Bond…protects a plan against losses caused by acts of fraud or dishonesty. Fraud or dishonesty includes, but is not limited to, larceny, theft, embezzlement, forgery, misappropriation, wrongful abstraction, wrongful conversion, willful misapplication, and other acts….The ERISA Bond is different from fiduciary insurance. The ERISA Bond protects plan participants from the acts of fraud or dishonesty described above. However, fiduciary insurance protects a plan fiduciary from claims relating to a fiduciary breach under ERISA. Thus, the ERISA Bond protects plan participants while fiduciary insurance protects plan fiduciaries…..Under ERISA, every person who “handles funds or other property” of an employee benefit plan is required to be bonded unless covered by an ERISA exemption. ERISA makes it an unlawful act for any person to “receive, handle, disburse, or otherwise exercise custody or control of plan funds or property” without being properly bonded.

As the American Society of Pension Professionals and Actuaries (ASPPA) reminds us, neglecting to obtain an ERISA bond from a Treasury-listed surety, is a very unwise move for any business sponsoring a retirement plan: “The annual Form 5500 series has a question about whether the plan is covered by a bond and how much the bond is….It is naive to think that one can go without a bond and not have it come to the attention of the regulators. It’s right there on the Form 5500 for anyone to go online and see.” To avoid triggering audits, investigations and penalties, plan sponsors need to maintain ERISA Bond Compliance.

For A Few Dollars A Day: Protection For Plan Sponsors

Colonial Surety Company offers an efficient and affordable Fiduciary+Cyber Liability Insurance bundle specifically to protect retirement plan sponsors. For a few dollars a day, you’ll be armed with:

$1,000,000 for Defense and Penalties if you are faced with alleged or actual breaches of fiduciary duty.
Cybersecurity Coverage for the business and retirement plan, which addresses Department of Labor recommendations, and includes expert response services to curtail damage after an incident.

To make protection even easier for plan sponsors, Colonial Surety Company helps you add Fiduciary+Cyber Liability Insurance to your ERISA Bond.

Get protected now: Fiduciary+Cyber Liability Insurance

Why Colonial Surety Company?