ERISA, Fiduciary, Crime, Fidelity, EBL…shaken, stirred — what was it I needed again?

ERISA Bonds, Crime Insurance/Fidelity Bonds, Fiduciary Liability insurance, and Employee Benefit Plan Liability (EBL) insurance are four separate and distinct products that perform four very different functions. It’s easy to get these various types of policies mistaken, especially when the names are used interchangeably. Many insurance brokers don’t understand their differences, and even more consumers are confused.

So, I’m here to help set the record straight!

ERISA Bonds

An ERISA Bond is the narrowest of all fidelity/crime coverage as it simply covers employee theft of benefit plan assets.

The Employee Retirement Income Security Act of 1974 (ERISA) requires that sponsors of ERISA-qualified plans maintain this coverage with certain minimum limits. Most Crime policies can also include ERISA provisions to extend coverage for theft of employee benefit plan assets. This coverage grant is designed to comply with ERISA regulations and eliminate the need for a separate ERISA Bond. Sometimes, the ERISA coverage is optional, so it’s important to confirm that the option is included and that adequate limits have been selected.

Crime Insurance/ Fidelity Bonds

The names “Fidelity Bond” and “Crime Insurance” are often used interchangeably, but technically there is a difference.

A Fidelity Bond is just Employee Theft or Employee Dishonesty coverage. You know…an employee stealing from an employer. The term Fidelity coverage comes from the word “fidelity,” which means the “quality or state of being faithful.” When an employee steals from an organization, he or she has breached the loyalty owed to their employer.

Crime Insurance, on the other hand, is Employee Theft coverage, plus a number of optional insuring agreements that protect businesses from theft from outside the organization, such as from third parties.

These risks include, but aren’t limited to:

• receiving counterfeit money orders and currency in good faith
• having money or securities stolen from the premises while in transit or while held by a financial institution
• checks forged or altered
• money fraudulently transferred
• being the subject of theft via a computer

These additional insuring agreements are optional and can be purchased with varying limits, so long as they don’t exceed the Employee Theft limit.

As previously discussed, the majority of Crime Insurance products include the ERISA Bond coverage as a component of the Employee Theft coverage. There is no additional charge for this coverage, and it isn’t necessary to maintain a separate ERISA Bond. In contrast, the ERISA Bond will only respond to theft of plan assets by an employee, not to theft of any other assets.

Fiduciary Liability Insurance

Fiduciary Liability insurance is a liability coverage designed to protect individuals who have a fiduciary responsibility in managing employee benefit plans. The entity is also covered by this policy.

ERISA states that individual fiduciaries can be held personally liable if plan participants allege a breach of their fiduciary responsibilities. If they fail to act diligently, make bad decisions in selecting fund options and third-party providers, or simply make a mistake when administering the plan, then this policy is designed to provide the individual or organization with defense coverage for allegations and, in many cases, pay damages owed. Fiduciary liability provides coverage to protect individuals for allegations related to their decision making.

Employee Benefit Plan Liability

Employee Benefit Plan Liability (EBL) is an extension or endorsement to the General Liability policy. This extension provides protection to employers against claims brought by employees or former employees for negligent acts or omissions in the administration of the insured’s employee benefits programs.

This insurance covers group life insurance and group accident and/or health insurance, profit sharing plans, employee stock subscription plans, workers’ compensation, unemployment insurance, social security benefits, and disability benefits.

Coverage is available for acts or omissions in various administrative activities, such as counseling employees, interpreting employee benefits programs, handling records, and enrolling/terminating/canceling employees. EBL is an administrative errors and omissions product that covers the damages because of a loss sustained by administrative error. A Fiduciary policy may include some administrative errors and omissions coverage; however, most companies choose to carry both Fiduciary and EBL.

So, Which Out of the Four Coverages Are Necessary?

Well, once again, it depends.

An ERISA Bond and EBL coverage are necessary for any company that offers retirement and employee benefit plans. Most companies will benefit from having a more comprehensive Crime Insurance program and can eliminate the expense of a standalone ERISA Bond when Crime Insurance is purchased.

EBL is normally endorsed onto the General Liability policy, but it will not address the liability-related decision-making exposure created by those who act in a Fiduciary capacity.

Fiduciary Liability is the only product that will provide defense and indemnity for the decisions made by the plan leadership.

Because these terms can be confusing and misinterpreted, Holmes Murphy strongly recommends your company carefully considers its needs and engage the appropriate insurance products to meet regulatory requirements, safeguard the corporate balance sheet, and protect the decision makers. And, we’re happy to help you weed through it all!

If you have questions, need coverage, or simply want to learn more, feel free to reach out to our Holmes Murphy Executive Risk team today. We’re here to help!