Top 10 ways to reduce your fiduciary liability #8
Indemnifying fiduciaries makes sense to consider as part of a prudent fiduciary structure. Once identifying the named fiduciary and proceeding with any delegation, those who have responsibilities delegated to them as co-fiduciaries assume personal financial liability for any awards, damages or legal expenses resulting from fiduciary breaches.
As a result, it makes sense for the company benefiting from these services to consider indemnifying their fiduciaries. The company may purchase ERISA fiduciary liability insurance so they can be reimbursed for any losses resulting from litigation. (Note that this is not the same as having a fiduciary bond.) This insurance helps the indemnification and makes an agreement that can be modeled from one the company may already be utilizing for other purposes.
The plan sponsor should offer to indemnify employees who are fiduciaries relevant to any fiduciary suits which may arise under ERISA. Examples of permitted indemnification agreements include indemnification of a plan fiduciary by:
- An employer with employees covered by the plan (or an affiliate of such employer)
- An employee organization whose members are covered by the plan
- The fiduciary’s employees who actually perform the fiduciary services