Employee benefits add to employer's liability

When many businesses think of employee benefits, they think of the actual product they are purchasing, such as health insurance, with little or no regard for the liability associated with managing the program.

What if they forget to add someone to the health insurance plan and the person is involved in an accident or becomes ill? What if the assets of the pension plan are embezzled? What if we pick the wrong investment vehicle and are sued by one or all of our employees?

In some cases, one can even be sued personally for decisions made on benefit plans.

If that isn't enough, 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.

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 who offers benefits should consider.

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

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.

Fidelity bonding (employee dishonesty). This coverage reimburses employers for losses 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 ERISA, 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, because it insures against employee theft in general.

This type of insurance is normally purchased in addition to other coverages. The cost varies depending on the number of employees who have access to money and securities, and what type of business you are in.

Fiduciary bond, or fiduciary liability. This coverage is written for individuals appointed to handle the affairs of others. Unfortunately, many business owners have a misconception that, since he or she hires an insurance company or investment firm to handle the pension or investment plan,the owner is 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 their pension or investment plan, the listed fiduciaries are the ones who are normally personally sued.

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

Employee benefits are a fantastic way to attract and retain employees. They also can create problems 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.)

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