Commercial Insurance Update – Fiduciary Liability: Do You Need It?

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August 2008

Fiduciary Liability Do You Need It?

By Jeffrey W. Cavignac, CPCU, ARM, RPLU, CRIS © 2008 Cavignac & Associates—All Rights Reserved

Nearly all our clients have some sort of employee retirement program as well as healthcare benefit programs. The fiduciaries of these programs are responsible for a number of things, including:

– Enrollment and Administration

– Establishing an Investment Policy

– Choosing a Plan Administrator

– Monitoring the Plan Results

– Educating participants with regard to investment choices

What many people may not understand is that all managers and fiduciaries that handle these programs are subject to personal liability in the event there is a claim related to employee benefit programs. This is imposed by the Employee Retirement Income Security Act of 1974 (ERISA). For more information on a fiduciary’s responsibilities, you can review the U.S. Department of Labor’s Web site at:

Common Misconceptions

1. I have an ERISA Bond – I’m covered.

ERISA bonds are required by law and must be in an amount equal to 10% of the assets in the plan, or $1 million, whichever is less.

Effective January 1, 2008, this requirement was increased to $1 million for any plans that include an employer’s securities (any stock issued by an employer of employees covered by the plan). ERISA bonds protect plan participants from theft by Plan Administrators. This covers only theft – it does not cover claims brought by employees or plan participants.

2. We have Employee Benefits Liability (EBL) endorsed on our General Liability policy – I’m covered.

Employee Benefits Liability covers the company and its administrators from legal liability arising out of administrative errors. It specifically excludes breach of fiduciary duty.

3. We use a third party administrator to run our program, so the risk is theirs!

If a third party administrator makes a mistake, it may be responsible. However, ERISA specifically prevents those responsible for running employee benefit programs from transferring their personal liability to a third party by contract.

The exposure to fiduciaries has recently escalated. Historically, individuals could not bring suit against a fiduciary. It was only when a fiduciary error caused an entire plan to sustain losses that a suit was allowed. This changed in late February 2008 when the U.S. Supreme Court rendered its decision in a case involving James LaRue and his employer, DeWolff, Boberg & Associates, Inc.

LaRue sued his former employer for failure to move assets within his 401(K) as he had instructed them to do. He alleged that this failure cost him $150,000. The court overturned the previous ruling that precluded an individual in a plan from bringing suit. It didn’t rule on whether or not LaRue should prevail in the case, but ruled that individuals now have the right to bring suit against their employers if they feel the employer didn’t exercise the appropriate degree of skill and care.

Although it remains to be seen, this may well generate an increase in claims against fiduciaries.

What Should You Do?

– If you don’t currently have fiduciary liability coverage, consider it – The cost is fairly minimal (for a 50 person firm, $1 million of coverage usually costs $1,500 or less). In many cases, if you already carry either an Employment Practices Liability or Directors & Officers Liability policy, you can add Fiduciary Liability to the existing policy at a lesser cost.

– Choose the right Third Party Administrator (TPA) or Investment Advisor and make certain your contract with them requires them to be responsible and hold you harmless for the consequences of their negligent acts errors or omissions.

– Make certain your TPA or Investment Advisor has appropriate Professional Liability insurance.

– Review your Plan’s investment options to make certain the choices are prudent and that a wide range of investment options are available.

– If company stock is one of the options in your program, warn employees about the dangers of accumulating high percentages of this asset.

– Make certain your employees are educated about your program and understand their options – A formal Education Meeting should be held at least once a year.

Fiduciary Liability is a real exposure. Although it lends itself to be managed, the cost of transferring this risk to an insurance company is fairly modest and should be considered. ±


Disclaimer: This article is written from an insurance perspective and is meant to be used for informational purposes only. It is not the intent of this article to provide legal advice, or advice for any specific fact, situation or circumstance. Contact legal counsel for specific advice.


2008 FOCUS Seminars

Cavignac & Associates’ FOCUS Room

Bank of America Plaza

450 B Street, 18th Floor, San Diego, CA

– Paperless Document Management Solutions

Thursday, September 4, 2008 — 9:00 AM to 11:00 AM

-Sexual Harassment Prevention Training

Satisfies requirements for AB1825 Training

Friday, September 12, 2008 — 9:00 AM to 11:00 AM

– Disaster Recovery Preparedness

Tuesday, September 23, 2008— 8:30 AM to 10:30 AM

All training sessions available to our clients Reserve early — seating is limited!

For more information about upcoming seminars:

– Visit our Web site at

– Contact Darcee Nichols at or 619-744-0596


Live Well, Work Well

Articles courtesy of Cavignac & Associates Employee Benefit Department © 2008 Cavignac & Associates—All Rights Reserved

Backyard Safety

Summertime is outdoors time, and many of us spend it in our own backyards. However, as familiar as we may be with our homes, there may still be hazards lurking about. These suggestions will help you and your family have an injury-free summer:

– Regularly inspect your backyard swing set, tree house, and/or play equipment for any sharp edges or loose parts, no matter how new they may be.

– Remove any poisonous plants that may be in your yard, such as poison ivy.

– Examine your entire yard for any hidden holes or deep depressions and take action to correct them. Small children may fall into or trip over them.

– Scrutinize partially hidden areas of your house (such as under eaves or windowsills) and grounds (such as tree branches) for wasps’ or bees’ nests. Remove them safely.

– Stay hydrated, especially if it is very hot out. Make sure to take breaks to sit in the shade and drink some water.

And you’ll now have an excuse to spend even more time in the yard! Try this delicious and speedy meal you can cook on the grill.

Raspberry Chicken

– ½ cup raspberry jam

– 3 tablespoons Dijon mustard

– 1 tablespoon honey

– 6 boneless, skinless chicken breasts (thawed)

– 1½ cups fresh raspberries

– White pepper

Spray the grill rack with vegetable oil. Mix the jam, honey, and mustard with a dash of pepper. Place the chicken on the grill, brushing them frequently with the mixture, until juices run clear. Cook time will be approximately 9 minutes per side. Throw away any remaining mixture. Sprinkle raspberries on top of the chicken before serving. Perfect with corn on the cob!


I Need How Much?!

It’s no secret that health care costs are rising, but have you given thought to how much you will need to have saved to cover medical expenses alone in your retirement? According to the Employee Benefit Research Institute:

– A 65-year old man retiring this year would need $64,000 saved up just to have a 50% chance to cover all possible health expenses. A woman needs $86,000. In order to have a 90% chance, a man needs $122,000; a woman needs $140,000. (The figures differ because of women’s longer life expectancies.)

– A married couple retiring this year needs savings of $154,000 to have a 50% chance of having enough to cover health expenses, or $235,000 for a 90% chance.

Even more sobering, these numbers do not include long-term care. Let this be a lesson in why saving for retirement is so important!

— Source: Employee Benefit News


My Achin’ Back…

Back pain is one of the most common medical problems, affecting 8 out of 10 Americans at some point in their lives. Are you one of them? Try the following tips to help keep pain at bay.

– Maintain good posture – this includes while sitting down.

– Do not talk on the phone with it cradled between your ear and shoulder. It may be convenient, but it can stiffen your spinal joints.

– Regularly strengthen back, abdominal and leg muscles. You need not strive for rock-hard abs, but keeping the core muscles of your body strong will take pressure off your back and prevent injuries.

– When watching TV or taking a nap on the couch, do not use its arm as a pillow. The angle is too sharp.

– Warm up or stretch before anything physical, even gardening.

– Avoid high-heeled shoes.

– If already suffering from back pain, do not lie in bed for more than a day – it will make the pain worse.

– Quit smoking – it weakens blood flow.

If any back pain persists for more than 3 days, call your physician.


Burn Those Calories!

Hate the thought of the treadmill? The stair stepper? Or lifting weights?

Well, good news: everyday things you do mindlessly may be just as good for you! Hobbies and leisure activities will also do your body some good.

Want to burn even more calories?

Get a good night’s sleep! Eight hours of rest per night can burn an extra 50 calories. ±


Community Bulletin Board

“Neighbors helping neighbors in San Diego”

2008 “Fruit of the Soul” Benefit Coming on September 6th!

Enjoy a night of delicious food and drinks, fine art and live music at Monarch School’s

2008 “Fruit of the Soul” benefit on Saturday, September 6th!

Fruit of the Soul proceeds benefit Monarch School’s A Reason To Survive (ARTS) Program, which supports the preservation of music, art and sustainable education in San Diego. Last year’s event raised $15,000.

Fruit of the Soul is presented by Niamh Scott Productions and Kelly Orange. The event organizers believe that “music, art and nutrition are the fruit of our souls, and the preservation of such in our educational system is necessary for our youths’ left- and right-brain creativity and growth.”


What Does Monarch School Do?

Monarch School is dedicated to helping kids break the cycle of homelessness through education. It serves nearly 500 homeless and at-risk kids each year in grades 2-12, providing students with an accredited education and enrichment programs. It also provides basic needs such as medical and dental care, food supplements and clothing, and bus and trolley passes.

Although an average child arrives at Monarch three years behind grade level, for every six months a child spends there, he or she typically progresses more than a year academically.

What Fruit of the Soul Benefit

When Saturday, September 6, 2008

Begins at 6:30 pm

Where Specialty Produce Warehouse

1929 Hancock Street, Suite 150

San Diego, CA

For Tickets and Event Information


For Information about Monarch School

Contact Stacy Marshall, Development Associate, at,

619-685-8242, Extension 226, or visit ±


Community Bulletin Board

“Neighbors helping neighbors in San Diego”


NEW Windmill Thrift Shop Location Is Now Open in City Heights!

The East Village Store has moved to:

4611 University Avenue

San Diego, CA 92105

(Between 46th Street and Menlo Avenue)

Hours 10 am—6 pm

Home Furnishings —Electronics

—Appliances —Toys

—Clothes —Books —Jewelry


Fur Ball 2008: Fun for All!

The San Diego Humane Society’s annual Fur Ball took place on Saturday, August 16th at the San Diego Campus for Animal Care at 5500 Gaines Street in San Diego. Over 600 people and 200 dogs attended the event that benefits the programs and animals of the San Diego Humane Society.

Activities included a cocktail reception, alfresco dining by Jeffrey Strauss of Pamplemousse Grille, an onsite raffle and silent auction, dancing and music by The New Moon Flyers, and fun activities for dogs. The Society thanks all who attended, and hopes to see you again next year!


Julie Plemmons and Buster

Cavignac Pooch Wins Prize

“Buster,” a 13-year-old terrier mix owned by Cavignac & Associates Account Administrator Julie Plemmons, won the award for the “Most Unusual Mix” at the Fur Ball. Congratulations to Buster and his proud owner!


“Meow Madness” a Feline Success

The figures are in! During the Meow Madness Adoption Event on June 7, 2008, 35 cats and kittens found new homes. An additional 89 felines went to new owners in June, bringing the total feline adoptions to 124 for the month.

Thanks to everyone who made this year’s Meow Madness a yowling success! ±


2008 Vigilucchi’s Beach Bocce Ball World Championships

Annual Bocce Ball Event Benefits Boys & Girls Clubs of Carlsbad

The 28th Annual Vigilucchi’s Beach Bocce Ball

World Championship was held at Dog Beach in Del Mar, California on July 12th. Proceeds benefited the Boys & Girls Clubs of Carlsbad, California.

Teams with colorful names such as “Shoulda Seen Us Last Year,” “Over Rated,” “Sons of a Beach,” “Hopin’ for Luck” and “Stop Asking, We’re Not Twins” competed for fun and glory. According to Pat Maldi, Marketing Director of the Carlsbad Boys & Girls Clubs, “It’s North County’s cleaner answer to the Over-the-Line Tournament in San Diego. It’s a party on the beach — bocce ball with sand, food and fun.”

And it benefited a great organization. The event, which featured 318 two-person teams, sold out three weeks in advance, and netted over $48,000 for the Boys & Girls Clubs of Carlsbad, an all-time record.

Cavignac & Associates Team members Patrick Casinelli and Matt Slakoff competed in this year’s event. Matt Slakoff described the day as one of “perfect weather, tough competition and a great cause. All in all, a great day!”

For more information about this year’s event, visit

For more information about the Boys & Girls Clubs of Carlsbad, visit ±