If your company offers a 401(k), pension, or health benefit plan, you're probably a fiduciary under federal law—whether you realize it or not. And here's the uncomfortable truth: one administrative mistake, one poorly chosen investment fund, or one missed enrollment notification can trigger a lawsuit that costs millions to defend. That's where fiduciary liability insurance comes in, and it's not just for Fortune 500 companies anymore.
Think managing a benefit plan is straightforward? Consider this: In 2024, UnitedHealth Group paid $69 million to settle allegations that they selected poorly performing investment funds for their 401(k) plan. The penalty for violating fiduciary duties now sits at $22,000 per violation—and that's before you account for the actual losses you might owe to the plan. Even smaller missteps, like failing to notify employees of a blackout period during an administrator change, have resulted in settlements of $850,000 or more.
What Is Fiduciary Liability Insurance?
Fiduciary liability insurance protects businesses and the individuals who manage employee benefit plans from lawsuits alleging they breached their fiduciary duties under the Employee Retirement Income Security Act (ERISA). If you're responsible for selecting investments, managing plan assets, or administering benefits, you're a fiduciary—and you're personally liable if something goes wrong.
This coverage is separate from the ERISA fidelity bond that federal law requires. The fidelity bond protects the plan from theft or fraud by people handling plan money. Fiduciary liability insurance, on the other hand, covers you when employees or plan participants sue, claiming you mismanaged the plan, charged excessive fees, gave bad advice, or failed to follow plan rules. It pays for your legal defense, settlements, and judgments—costs that can easily reach seven figures.
Why You Need This Coverage (Even If You Think You Don't)
The volume of fiduciary lawsuits has exploded in recent years, particularly excessive fee litigation. Employees have filed class actions alleging that their employers chose expensive investment options when cheaper alternatives existed, failed to negotiate better pricing as plan assets grew, or allowed recordkeepers to charge unreasonable fees. These cases don't just target massive corporations—mid-sized companies and nonprofits face them too.
Personal liability is the real kicker. Under ERISA, if you breach your fiduciary duties, you are personally liable to restore any losses to the plan and return any profits you made through improper use of plan assets. The Department of Labor can also assess a 20% penalty on top of amounts recovered. In severe cases, you could be removed as a fiduciary and permanently barred from managing ERISA plans. Without insurance, you're defending these claims with your own assets on the line.
Real-world claims illustrate the risk. A nonprofit's plan trustees failed to properly advise an employee about enrollment, assuming it was automatic. When the employee sued for lost benefits worth over $200,000, the case settled for $65,000. A company's female employees discovered their pension calculations didn't account for maternity leave. That class action exceeded $2.5 million in settlement and defense costs. Even administrative errors—like misclassifying independent contractors who later claimed plan eligibility—can generate $1 million in defense costs alone.
What Does Fiduciary Liability Insurance Cover?
Fiduciary liability policies typically cover defense costs, settlements, and judgments arising from alleged breaches of fiduciary duty. This includes claims that you failed to diversify plan investments, charged or allowed excessive fees, gave improper investment advice, failed to follow plan documents, made enrollment or benefit calculation errors, or improperly denied claims.
Coverage typically extends to the company, individual fiduciaries (like plan administrators, trustees, and investment committee members), and the employee benefit plans themselves. Most policies cover 401(k) plans, pension plans, health and welfare benefit plans, and other ERISA-governed programs. Importantly, the policy usually covers alleged violations even if you didn't intentionally do anything wrong—administrative mistakes and honest errors in judgment count.
What's not covered? Intentional fraud, criminal acts, and personally profiting from plan assets are excluded. The policy won't cover fines and penalties you owe to government agencies (though it will cover defense costs for regulatory investigations). And if you knew about a problem before you bought the policy and didn't disclose it, that claim won't be covered either.
How Much Coverage Do You Need and What Does It Cost?
Most businesses carry between $1 million and $10 million in fiduciary liability coverage, with $5 million being common for mid-sized companies. Your coverage needs depend on your plan assets, number of participants, and risk profile. Companies with larger plans, more complex investment lineups, or histories of participant complaints typically need higher limits.
The good news? Premiums are relatively affordable. Most companies pay between $500 and $2,500 annually for fiduciary liability coverage up to $10 million. Larger organizations or those with significant plan assets may pay more—nonprofits and LLCs sometimes see costs ranging from a few thousand to tens of thousands of dollars per year. Your premium depends on factors like plan size, number of participants, types of plans you offer, claims history, and governance practices.
The 2024 market has remained relatively stable for companies without major risk changes, with many renewals seeing flat pricing. However, insurers increasingly focus on retentions (the amount you pay before insurance kicks in) rather than premiums. Seven-figure retentions are now common for high-risk exposures, though some carriers offer first-dollar coverage for plans with less than $200 million in assets.
How to Get Started and Protect Yourself
Start by talking to an insurance broker who specializes in management liability coverage. They'll help you assess your risk, determine appropriate coverage limits, and compare policies from multiple carriers. Be prepared to provide information about your benefit plans, plan assets, participant count, governance structure, and any past claims or regulatory inquiries.
Beyond insurance, solid fiduciary practices reduce your risk. Document your decision-making processes, especially for investment selection and fee negotiations. Regularly benchmark your plan fees against comparable plans. Follow your plan documents precisely. Provide clear enrollment communications and maintain detailed records. Consider establishing a formal investment committee with documented meeting minutes. Many fiduciaries also engage independent advisors or third-party administrators to help manage complex compliance requirements.
If you discover a potential violation, the Department of Labor's Voluntary Fiduciary Correction Program allows you to remedy breaches and report violations without facing enforcement action, helping you avoid penalties. But prevention is always better than correction, and fiduciary liability insurance gives you the financial protection you need when prevention isn't enough. With average claims settling around $1 million and annual premiums starting under $1,000, this coverage offers tremendous value for anyone managing employee benefit plans.
