While 1974 may be better remembered for the Watergate scandal and Hank Aaron tying Babe Ruth’s all-time home run record, it also marked the enactment of the Employment Retirement Income Security Act (ERISA). This law provides important protection to participants in various employee benefit plans, including health plan and 401(k) participants.
Momentum for pension legislation began building following the bankruptcy of legendary American automotive manufacturer, Studebaker. When the company filed for bankruptcy, its pension funds were so poorly funded that many of its employees received only a fraction of what they were entitled to receive. That crisis ultimately lead to the enactment of ERISA, which established standards for plan fiduciaries, and with it, a means for harmed plan participants to sue those responsible for managing benefit plans. Due to the adoption of ERISA, the fiduciary of an employee benefit plan is obligated to:
When a fiduciary is liable
ERISA holds fiduciaries personally liable for a breach of their obligations. Given this accountability and potential liability, it is critical that fiduciaries understand their responsibilities under ERISA and ensure that the company they represent has the right insurance coverage in place to protect and defend them if something goes wrong. Fiduciary Liability Insurance protects the fiduciaries and their sponsor organizations from costly defense expenses, settlements or verdicts when there is an actual or alleged breach of fiduciary duty.
ERISA exposures continue to evolve
While ERISA and the EBSA have certainly protected plan participants over the past 40 years, they have also created a new host of exposures for plan fiduciaries, which continue to evolve. In fact, the enactment of the Patient Protection and Affordable Care Act is likely to give rise to new fiduciary exposures.