PLANADVISER - September/October 2018 - 16

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Fiduciary Insurance Is Critical
Insurers scrutinize potential customers more carefully
WITH retirement plan litigation on the
rise, experts say it is more important
than ever for retirement plan sponsors
to have adequate fiduciary insurance.
And, as a result of the increase
in litigation, carriers have become
more selective about sponsors they
will cover.
" These are interesting times right
now, " says Rhonda Prussack, senior
vice president and head of fiduciary
and employment practices liability at
Berkshire Hathaway Specialty Insurance.
" There is a tremendous amount
of class action litigation naming plan
sponsors and their agents, particularly
with respect to private company
employee stock ownership plans
[ESOP] and fees. None of this litigation
seems to be slowing up. "
In fact, claims are moving down
market, " particularly the excessive
fee cases, " she says.
" Everyone has to be aware of their
fiduciary duties, make sure they have
processes in place [for] these duties
and work with an insurance broker to
make sure they have adequate fiduciary
insurance coverage in case they
are sued, " Prussack says.
As to the potential monetary value
of insurance a sponsor will need,
generally " 10% of the plan assets "
is a good rule of thumb, Prussack
says. However, the sponsor has to
consider the " size of the plan and the
complexity, " she says.
" That answer
might change if the plan is an ESOP
sponsored by a nonpublicly traded
company. It is not uncommon for
companies with large plans [holding]
$1 billion or more in assets to purchase
towers of insurance of $75 million to
$100 million or more. "
A tower is created by coverage from
several insurance carriers, explains
Nancy Ross, a partner and head of the
Employee Retirement Income Security
Act (ERISA) litigation practice at Mayer
Brown. " If you want $100 million in
insurance, you certainly might have
different carriers, " Ross says. " Generally,
one carrier will provide only up
to a certain level of coverage, say up to
$25 million. Then the next two might
each cover $15 million apiece. "
Even just 15 years ago, fiduciary
coverage was typically offered within a
rider attached to a company's directors'
and owners' (D&O) policy. Fiduciary
insurance coverage has since been
carved out as a stand-alone, Ross says.
If a sponsor thinks its D&O coverage
extends to fiduciary insurance, it might
be in for a surprise, she warns.
When assessing how much insurance
to have, it is critical for sponsors
to consider how high their
defense costs could run, Ross says.
" In a complicated ERISA class action
alleging fiduciary breaches, your
defense fees can run anywhere from
$10 million to $20 million. So, if they
run on the high side and you have a
$50 million policy, will the remaining
$30 million be enough to cover the
cost of being hit with a judgment? "
-Lee Barney
16 | planadviser.com September-October 2018
Art by Luyi Wang
http://www.planadviserdigital.com/planadviser/september_october_2018/TrackLink.action?pageName=16&exitLink=http%3A%2F%2Fplanadviser.com
PLANADVISER - September/October 2018

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