This past weekend, my wife and I signed up our children for summer camp. At $10,000, it was actually more than more than 3 years of my tuition at Stony Brook. I met the camp owner and just being so fascinated about liability issues, I told him that I can only imagine his liability insurance premiums. The owner said between the umbrella and liability, it was a lot. To add further discussion, he also told me that any vendor showing up on his property including a magician or a carnival operator also had to have proof of liability insurance as a condition of his insurance coverage.
The same really should go for retirement plan sponsors. Ultimately, plan sponsors need that required ERISA bond and should always purchase fiduciary liability insurance to protect the plan fiduciaries. As one of my clients once found out the hard way, the plan fiduciary is ultimately responsible for the errors and omissions committed by plan providers. My clients who invested plan assets in Bernie Madoff also know that as well.
So while plan fiduciaries are ultimately responsible for the malfeasance of plan providers, they can still recover against them on the grounds of malpractice. It’s very hard to recover on the grounds of malpractice if the plan providers are not properly insured because a large award on a malpractice claim can trigger a quick plan provider bankruptcy and the plan fiduciaries will recover pennies on the dollar of the reward.
So to further protect their interest, the plan sponsor needs to ensure that all plan provider s are properly insured including third party administrators, financial advisors, accountants, and ERISA attorneys.
For disclosure purposes, I have malpractice insurance.