Employee Benefits

Proper insurance

coverage helps protect against problems with company benefits

by Richard Ollis

When many businesses purchase or provide benefits for their employees, they accept a great deal of liability.

What if they forget to add someone to the health insurance plan? What if the assets of the pension plan are embezzled, or worse, we pick the wrong investment vehicle and are sued by one or all of our employees?

And liabilities are not the only thing to contend with. There are also federal and state requirements that must be met.

The world of employee education and communication is also filled with hidden liabilities. What if our human resources department gives incomplete or inadequate advice about what's covered or how to properly file a claim?

COBRA, HIPAA, and ERISA guidelines must be complied with. Many things can be said or done to create difficulties. The possibilities for errors, lawsuits or huge public relations problems between the company and its employees are abundant.

With employee benefits being so important, how does a business provide a wide array of benefits, comply with all the regulations and reduce its liability? Most can reduce or even eliminate their liability through a properly designed insurance program at a very small cost. There are several insurance coverages that every employer that offers benefits should consider.

?Employee benefits liability is a coverage normally added to the general liability policy. It protects against negligent acts, errors or omissions committed by your business, or any person whose acts you are legally responsible for while engaging in the management of employee benefit plans.

A common example of a potential claim is forgetting to add an eligible employee to the health insurance plan and a claim occurs that would have been covered if they were properly added. This coverage is based on the number of employees and is relatively inexpensive, normally between $100 and $500 annually.

?A fidelity bond, or employee dishonesty coverage, reimburses employers for loss sustained because of dishonest acts of covered employees. The key here is to name and list all company-sponsored pension and investment plans. In fact, in order to comply with the law, the bond amount needs to be at least 10 percent of plan assets.

Frankly, this is a coverage every business should have regardless of whether they are required by law to carry it. This type of insurance is normally purchased in addition to other coverages. The cost varies depending on the number of employees that have access to money and securities and what type of business you are in.

?A fiduciary bond, or fiduciary liability coverage, is written for individuals appointed to handle the affairs of others. Unfortunately, many business owners have a misconception that since they hire an insurance company or investment firm to handle the pension or investment plan that they are released from liability.

If you will look at your plan document, there is normally a section that lists the fiduciaries of the plan.

Usually, the named individuals are the owners, managers or accountants for the business. The important thing to realize is that the listed fiduciaries can be held personally liable for the decisions they make.

In other words, even if you hire someone else to manage the fund, you are responsible for selecting and monitoring that firm. When an employee or group of employees becomes disgruntled with a pension or investment plan, the listed fiduciaries are the ones who are normally sued.

This coverage is often overlooked, especially when a firm is hired to manage the fund. This coverage can be purchased on a stand-alone basis or in conjunction with the coverages listed above. The cost is based on the limit of liability selected and the value of funds. Best of all, it actually personally protects the named fiduciaries.

Employee benefits are a fantastic way to attract and retain employees. They also carry some liability exposures that, if not properly managed and protected, can devastate a company, Don't wait for a problem to occur before investigating these coverages and the costs associated with them.

(Richard Ollis is a commercial insurance specialist with Ollis and Company. He is chairman of the Missouri Young Agents and represents 11 Midwest states on the National Young Agents Committee.)

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