Due to the current economic conditions and the slumping of the financial markets, many employees have seen their nest eggs disappear almost overnight. It is essential to realize that these employees can or may be responsible for their losses. The importance of having fiduciary liability coverage or increasing current limits of coverage is at an all-time high. The size of your company does not eliminate you from litigation by a retirement plan participant if you are offering this benefit to your employees.
Employee Benefits Liability
The common misconception is that Employee Benefits Liability (EBL) is an insurance coverage that provides protection for many of the same exposures associated to fiduciary liability. It is often confusing to differentiate between the two, but the main difference is that EBL only protects against claims for errors and omissions in plan administration, not against any breach of fiduciary duty under ERISA.
In addition to retirement plans, EBL also extends to provide protection for errors in administration of other employee benefit programs such as group life, health, dental, automobile, educational reimbursement, workers’ compensation, savings and/or vacation programs. Errors or omissions in administration commonly include misinforming employees of the content in any benefit programs, giving advice about a program, handling records in connection with a benefit program, or an error in administration that affects enrollment, termination or cancellation of any employees under a benefit program.
Often, administrative errors go overlooked by principals and officers of companies, but the potential impact on employees when an error occurs can be significant. Employers who offer health insurance to employees are responsible for providing information regarding the enrollment period for their employees as well as ensuring they have properly been offered an opportunity to accept or decline coverage if they qualify.
Additionally, one of the core responsibilities of employers is to make sure they are in compliance with their group health providers’ requirement for the number of employee participants. Almost all carriers require at least 75 percent of qualified employees participating, or provide an acceptable waiver stating they are already insured under another qualified health plan (usually with their spouse’s company) and therefore decline coverage from their employer.
One example of an administrative error connected with this rule would be if an employer did not acquire the acceptable waivers from non-participating employees and a significant claim (such as a participating employee being diagnosed with cancer) was turned in to the group health provider. The insurance carrier has the right to review your records before accepting the claim and may potentially deny and cancel coverage to the diagnosed employee since the employer was out of compliance and did not administer the records of the plan properly.