What does Fiduciary Liability have to do with Nonprofits?

What is Fiduciary Liability?

The heart of every nonprofit organization is to help and care for others, so why would anyone lead a nonprofit if they didn’t take proper care of those around them? Unfortunately, when you’re running a nonprofit, it is easy for the small details to fall through the cracks. This is when Fiduciary claims can arise and create financial hardship for your company and its employees. A Fiduciary responsibility is a promise to exercise care in regards to a beneficiary and a trustee. Obtain a Fiduciary Liability quote for your nonprofit, social or human services today!

The legislation known as ERISA (Employment Retirement Income Security Act of 1974) was developed in 1974 and was meant to cover not only retirement plans but virtually all employment benefit plans. When any part of ERISA is compromised, it leaves room for lawsuits against a company. An example of breaching ERISA and causing a Fiduciary claim would be a nonprofit who maintains a 401(k) plan for their employees. If the management team of the nonprofit does not monitor the stock that the 401(k) is kept in, the 401(k) holding the employee’s retirement money could suffer. This could create an undue hardship on the employees as well as the nonprofit. 401(k)’s, stock programs, profit sharing programs and the like hold significant amounts of money, so it makes sense that the Insurance Journal stated that the average cost per claim totals just under $1 million that could potentially be covered by Fiduciary insurance.

Who does Fiduciary Liability protect?

Fiduciary Liability is meant to cover managers, directors, Human Resource personnel, and virtually anyone who manages the plans that are subject to ERISA. This coverage could protect a company from defense costs as well as the amount to indemnify losses. These losses could stem from multiple occurrences including the termination of a plan due to mergers or acquisitions, negligence of the management to maintain the correct amount of money in a 401 (k) plan, or poor investing of employee stock that results in an employee’s stock being rendered worthless. This coverage alongside Employee Benefits Liability is the only way to ensure protection against a costly employee benefits claim.