Can ERISA Accounts Be Used to Pay for Fiduciary Liability Insurance?

“We currently sponsor an Employee Retirement Income Security Act (ERISA) 403(b) plan with an ERISA expense reimbursement account that we use to pay permissible plan expenses. Can we pay for our fiduciary liability insurance coverage from that account?”

Charles Filips, Kimberly Boberg, David Levine and David Powell, with Groom Law Group, and Michael A. Webb, senior financial adviser at CAPTRUST, answer:

Fiduciary liability insurance coverage is generally eligible for payment from plan assets, so long as the policy permits recourse by the insurer against the fiduciary in cases of a loss owing to breach of fiduciary obligations. Generally, though plans can pay the modest cost of fiduciary liability insurance from plan assets, most plans don’t pay for this expense from plan assets, since the standard policy allows the insurance company recourse to recover a covered loss from plan fiduciaries directly.

Having said this, the employer can purchase a waiver of this recourse provision from the insurer, but that portion of the coverage could NOT be paid out of plan assets. As such, because coverage would be paid partially from plan assets and partially outside of plan assets, and there are not typically large dollar amounts involved, most employers simply pay this coverage directly to minimize administrative complexity.

NOTE: This feature is to provide general information only, does not constitute legal advice, and cannot be used or substituted for legal or tax advice.