This document discusses protecting fiduciaries through insurance, bonding, and other means. It notes that over 6,700 ERISA lawsuits were filed in 2017, with settlements totaling $927.8 million. It also discusses the Department of Labor's recovery of over $1.1 billion for employee benefit plans in 2017 through enforcement actions and complaints. The document provides an overview of fiduciary liability insurance, fidelity bonding requirements under ERISA, and considerations for cyber insurance to protect participant data and plan assets from cyber threats.

1. Protecting Fiduciaries:
Insurance, ERISA Bonding, and More

2. General – Fiduciary Liability Insurance and ERISA Bond
• Fiduciary Liability Insurance Coverage
• Fidelity Bond Coverage

3. ERISA Lawsuits*
•6,700 lawsuits filed under ERISA
•Top 10 ERISA settlements in 2017 totaled $927.8 million
•Highest rate in class action certifications – 77% of claims were certified
as actions
•15 – excessive fee cases were settled
* Seyfarth Shaw, Workplace Class Action Litigation Report
3

4. DOL 2017 Activity
•EBSA restored over $1.1 Billion to Employee Benefit Plans
•Enforcement (investigations) - $682.3 Million
•VFCP - $10 Million
•Participant Complaints - $418.7 Million
•Abandoned Plan Program - $27.9 Million
•Civil Investigations
•1,707 cases- 1,114 resulting in monetary results (65.3%)
•Litigation referrals - 134; Cases filed - 50
•Criminal Investigations
•79 cases closed with guilty pleas/convictions
•113 Individuals indicted
4

5. ERISA - Basics
•Who is a fiduciary?
•ERISA 3(21); de facto fiduciaries
•Fiduciary Duties – ERISA 404
•Eye single to Participants & Beneficiaries
•Diversification
•Prudence
•Follow plan documents, unless contrary to ERISA
5

6. ERISA Basics (continued)
•Prohibited Transactions – ERISA 406
•(a) Violations – Plan and Party-In-Interest
•Furnishing goods or services
• Extension of credit or loans
•(b) Violations – Fiduciaries
• Self-dealing
• Kickbacks
•Exemptions – ERISA 408
•Contract or arrangement is reasonable
•Services are necessary for the establishment or operation of the Plan
•No more than reasonable compensation is paid for services
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7. Fiduciary Liability Insurance – Why do you need it?
•ERISA 409 – personal liability
•Increase: lawsuits, plaintiffs’ bar, government
investigations
•Defense of lawsuits extremely expensive
•No coverage under other policies (D&O, EPL, GL, etc.)
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8. Who’s Covered?
• Definition of “Insured”
• “Insured Person” – past, present, future directors, officers, and
employees of the sponsoring organization in their capacity as
fiduciaries, administrators or trustees of a covered plan
• Sponsor organization and its subsidiaries
• Sponsored plans
• Who is not Insured
• Third party service providers
• Independent contractors
8

9. Key Policy Provisions
• “Insuring Agreement”
• Pay losses on account of any claims made during the Policy Period as a result of any wrongful act committed by
any Insured.
• “Claim”
• Written demand for monetary or non-monetary damages
• Lawsuit or arbitration
• Formal regulatory or criminal proceeding
• Informal or Fact-Finding Investigation and Benefit Claim Denial
• “Wrongful Act”
• Breach of fiduciary duty under ERISA
• Negligent act, error or omission by an Insured in Administration of a Plan
• “Settlor” Coverage (e.g. establishing, amending, funding, or terminating a Plan)
9

10. Key Policy Provisions (continued)
• “Loss” – damages, judgments, settlements and defense costs; certain
civil penalties (502(l), (i), or (c))
• “Defense Costs” – duty to defend
• “Exclusions”
• Benefits due
• Prior/pending litigation
• Claims noticed to a prior carrier
• Items covered by other insurance (property, GL, EPL, etc.)
• Fraud/profit
• Breach of contract
10

11. Triggering the Policy
•Notice Requirements
•Failure to provide timely notice – no coverage
•Various scenarios:
•Demand letter (pre-litigation)
•Complaint
•DOL “Investigation”
•ERISA 510 claim (notice to EPL but fail to notice Fiduciary Policy
or vice-versa)
11

12. Fee Litigation Craze
•Plaintiffs’ Bar Interest
•Smaller plans now exposed
•Recruiting Plan participants
•Demand for plan documents
•“instrument under which the plan is established or operated”
•Minutes?
•Tibble v. Edison
•Ongoing duty to monitor the the prudence of plan investments
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13. Fee Litigation Craze (continued)
•Complaint
•Record keeping fees too high for the size of the plan
•Fiduciaries failed to have RFPs to ensure reasonableness
•George v. Kraft Foods (7th Cir. 2011)
•An independent opinion is not a magic wand that a fiduciary
may simply waive over a transaction to ensure their
responsibilities are fulfilled (citing to Donovan v.
Cunningham)
•Record keepers paid through revenue sharing
•Share of classes used more expensive than others
13

14. Fee Litigation Craze (continued)
• Settlements
• American Airlines (N.D. Tex., 2017) - $22M
• Northrop Grumman (C.D. CA., 2017) - $16.75M
• Mass Mutual (D. Mass., 2016) - $30.9M
• Novant Health (M.D. N.C., 2016) - $32M
• Boeing (S.D. Ill., 2015) - $57M
• Ameriprise (D. Minn., 2015) - $27.5M
• Lockheed (S.D. Ill., 2015) - $62M
• Subsequent remedial measures?
• Negotiating reductions in fees from IMs and record keepers
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15. Policy Considerations
•How expensive? How much coverage is necessary?
•Coverage limited or expansive (e.g. include settlor)
•Number of participants and beneficiaries
•Amount of plan assets
•Deductible/Retention
•Prior litigation or investigations
•Tower of insurance (various carriers?)
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16. Fidelity Bond
•ERISA 412
•REQUIRES every person who “handles” plan assets be bonded
•Who has authority to sign checks, disburse funds?
•Purpose
•To protect against misappropriation by persons handling plan assets
•Amount Required
•Amount equal to 10% of a plan’s assets – max. required bond is $500,000 -
can purchase with plan assets
•If include employer securities - $1M - can purchase with plan assets
•Exclusion for Cyber Crime?
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17. Cyber Insurance
•Fiduciary duty to ensure participant information and plan assets are protected from cyber threats/crimes.
• ERISA Advisory Council:
•Data management - Protect and control data.
•Technology management – Maintain up to date technology.
•Service provider management – Perform due diligence on plan data security of service providers.
•People issues – Properly train and manage personnel.
•The Council advised to consider the following to manage cybersecurity:
•Develop a strategy
•Identify data and assess risks (how is data stored, controlled, accessed, and transmitted)
• Establish processes relating to testing and updating technology, training personnel, and managing third party
risks.
• Available resources, cost, size, complexity and overall risk exposure must be taken into consideration.
•Have cybersecurity discussions with the service providers and review their current policies or procedures relating
to data security
•Insurance – endorsement or separate stand alone policy
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18. CONTACT US
Jose M. Jara
Partner, ERISA and Employee Benefits Practice Group Leader
CKR Law LLP
1330 Avenue of the Americas, 14th Floor
New York, NY 10019
Phone: (212) 259-7300
Fax: (212) 259-8200
Jjara@ckrlaw.com
www.ckrlaw.com
OUR LOCATIONS
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19. CONTACT US
Rhonda Prussack
Head of Fiduciary and Employment Practices Liability
Berkshire Hathaway Specialty Insurance
85 Broad Street, 7th Floor
New York, NY USA 10004
Office +1 917.960.2449
Mobile +1 917.328.5322
rhonda.prussack@bhspecialty.com
www.bhspecialty.com

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