QandAs: Finance

What is a Fiduciary Liability?

Answer:
A fiduciary is someone assigned to safeguard the assets of a plan’s beneficiaries such as a pension manager.

Being a named fiduciary is one thing however fiduciary duties aren’t limited to the named individual or entity. Anyone who uses discretion in administering or managing a plan or controlling its assets becomes a fiduciary to the extent of that control or discretion.

Because fiduciaries have a tremendous amount of control over the plan, they face potential liability issues. Since the passage of the Employee Retirement Income Security Act of 1974, fiduciary liability increased in the United States. Fiduciaries can be held liable for any breach of their fiduciary duties including errors, acts, and omissions made by outside entities that provide services to the plan such as consulting and law firms.

Because of the potential for fiduciary liability, several types of fiduciary liability insurance and bonds exist ranging from standalone policies, fidelity bonds (which are required by law), and employee benefit liability insurance along with classes of directors and officers liability, commercial general liability, and other insurance policies with fiduciary liability endorsements.