Employee benefits programs help attract and maintain a skilled workforce. But these benefits programs come with obligations and potential risks for employers or fiduciaries who do not properly administer these benefits. Employer benefit liability policies and fiduciary liability policies are types of coverage taken by an employer or fiduciary to protect himself against claims by employees who are dissatisfied with the administration of their benefit plans. Although both policies work hand in hand, there are some significant differences between the two.
Plan Vs. Fiduciary
The employee benefit liability policy is designed to protect the beneficiaries of the plan and the plan itself in the event of administrative errors. With coverage through these policies, beneficiaries do not lose their benefits as a result of the errors, because the policy pays for any losses incurred by the benefit plan itself. On the other hand, the fiduciary liability policy protects the person or entity in charge of administering the benefits plan, as well as any personal assets involved, from incurring liability as a result of breach of fiduciary duty in the management of the benefits plan.
Management Vs. Administration
The employee benefits liability claim is primarily concerned with the damages claims brought by employees as a result of administrative errors. Examples of these errors include erroneously calculating the amount of pension money, resulting in the employee receiving less than expected upon retirement, or forgetting to register an employee in the medical care program, an oversight that might not be discovered until the employee is admitted to a hospital. Fiduciary liability is concerned with damages that result from the personal conduct of a fiduciary -- such as dishonesty and infidelity -- as well as with the financial and management aspects of the benefits plan. The violations covered by the fiduciary liability policy are established by the Employee Retirement Income Security Act 1974, some of which include being negligent in investing of funds, lack of diversification of the investment and financial mismanagement.
Types of Claimants
As the name suggests, the employee benefits liability policy is only applicable for claims by current and former employees who are beneficiaries of the benefits plan. Some employers or fiduciaries mistakenly believe an employee benefits liability policy is enough protection against legal claims. The fiduciary liability policy protects the fiduciary against claims made by both current and former employees as well as other entities, such as the Department of Labor, Pension Benefit Guaranty Corporation and the beneficiaries' legal estates.
Deductible
A deductible is an amount payable by the insured to the insurer before the insurer processes the claims made by the insured. Employers and fiduciaries who are protected by the employee benefits liability policy usually pay a deductible for any of the risks (administrative errors) covered under this policy. On the other hand, under the fiduciary liability policy, there usually is no deductible payable to the insurer to process the claim. Given the extensive list of fiduciary liability risks, paying a deductible for every risk would deter fiduciaries from purchasing this policy.
