Does a senior living operator need fiduciary liability coverage?

Fiduciary status attaches to function rather than title. Anyone exercising discretionary authority over plan administration or plan assets is a fiduciary, which usually captures the owner, the chief financial officer, the human resources director and every member of an investment or benefits committee, whether or not anyone told them so.

Liability is personal and it can extend to personal assets. It is also joint, so a committee member who did not attend the meeting where the decision was made is exposed to the decision.

Excessive fee claims, alleging the plan paid more for recordkeeping or investment management than a prudent fiduciary would have. Imprudent investment selection and failure to monitor. Failure to remit employee contributions promptly, which is the most common enforcement finding and a particular risk in an industry with tight cash cycles.

Health plan claims, including eligibility disputes and, increasingly, claims about the prudence of health plan pricing decisions. And plain administrative error, which is more common than fraud and produces the majority of the actual claims.

Federal law requires a fidelity bond covering persons who handle plan funds. That bond protects the plan against theft. It does not defend a fiduciary accused of imprudence, and it does not pay a judgment for breach of duty.

Fiduciary liability coverage is the product that defends and indemnifies the fiduciary. Confirm it covers settlor functions where possible, covers voluntary correction program costs, and covers the health and welfare plans rather than only the retirement plan.

A written investment policy statement. A benefits committee with a charter, scheduled meetings and minutes that record the basis for decisions. A documented periodic benchmarking of recordkeeping and investment fees. Prompt remittance of employee deferrals with a monitored timeline.

Those four together are close to the whole prudence defense, and they are also what a fiduciary liability underwriter will ask for. The process is the defense, and the absence of minutes is the case.