Many fiduciaries find audits by the Department of Labor (DOL) mysterious, so it helps when the DOL provides any type of guidance. The DOL’s Employee Benefits Security Administration (EBSA) recently released 2018 statistics for its enforcement of the Employee Retirement Income Security Act of 1974 (ERISA). When combined with EBSA’s recent commentary on its enforcement initiatives, fiduciaries can be better prepared to address compliance issues before a DOL audit. The following is an analysis of the recently released 2018 statistics, as well as a look at the “national enforcement projects” for EBSA investigators. EBSA continues to target its published enforcement priorities, is focusing on major cases, and is recovering higher overall amounts in its investigations. The Voluntary Fiduciary Correction Program also continues to grow.
2018 Statistics compared to 2017
One specific trend to note is the increase of monetary recovery by EBSA. In Fiscal Year 2018, EBSA closed 1,329 civil investigations, with 860 of those cases (64.7%) resulting in $1.1B monetary recoveries for plans or other corrective action. In comparison, during Fiscal Year 2017, EBSA closed more than 1,707 civil investigations with 1,114 of those cases (65.3%) resulting in $682.3M in monetary recoveries for plans or other corrective action. While EBSA closed fewer investigations in FY 2018 than it did in FY 2017, the total monetary recovery from enforcement actions increased by $400M from FY 2017, as detailed in the table below.
The ERISA-mandated recourse provision discussed in the preceding section – which applies if the fiduciary insurance is paid out of plan assets – means that a breaching fiduciary’s personal assets would still be at risk for all losses caused by the fiduciary notwithstanding the fiduciary insurance policy. To prevent the right of the insurer to recoup any payments from the individual fiduciary, therefore, the fiduciary liability insurance policy must include a “waiver of recourse” provision.
Fiduciary liability insurance and fidelity bonding are easily confused. A fidelity bond is a contract under which the issuer of the bond, typically a surety company or an insurance carrier, agrees to reimburse a benefit fund for losses caused by theft, fraud, or other dishonest acts covered by the bond. A fidelity bond covers losses due to intentional acts to deprive a benefit fund of fund assets. By contrast, a fiduciary insurance policy covers losses caused by negligence or other acts or omissions not intended to cause the benefit fund to lose assets. But unlike fiduciary insurance which is discretionary, fidelity bonding is mandatory under ERISA.
Who must be bonded? The ERISA standard is that each person who handles plan assets must be bonded. The ideal bond not only names the plan as the insured and covers the plan’s trustees and employees, but also covers any natural persons employed by a vendor who would be required to be bonded. The reason is that fund assets are often handled by third parties. Euclid Specialty’s coverage is even broader, expanding coverage to “… any other natural person who handles Employee Benefit Plan assets, whether or not required to be bonded …” With this language, coverage is automatic not only for the employees of a plan vendor, but also for the employees of entities typically exempt for ERISA’s bonding requirements, such as banks and insurance companies. An employee of a non-fiduciary service provider would also be covered if they embezzle plan assets. The key provision to review is the definition of “Plan Official” or “Employee” to ensure that your bond meets the ERISA requirement.
The modern fiduciary liability insurance policy will offer four basic coverage grants: (1) breach of fiduciary duty; (2) negligence in the administration of the plan; (3) voluntary compliance programs; and (4) regulatory penalties.
A fiduciary liability insurance policy is a contract designed to protect plan trustees, other fiduciaries and the employee benefit plan against claims alleging breach of their fiduciary duties to the plan or claims alleging they committed an error in the administration of the plan.
Euclid Specialty Managers, LLC is an insurance program administration company specializing in fiduciary liability insurance for employee benefit plans. We provide best-in-class fiduciary, crime/ERISA fidelity, cyber liability, EPL and other professional liability insurance coverages to protect the trustees of U.S. employee benefit plans. Our underwriters and claim professionals are experts in fiduciary liability and crime exposures, with decades of fiduciary experience for complex employee benefit plans.