Fiduciary liability insurance protects your personal assets when employees sue over retirement plan mismanagement. We analyzed policies from major insurers and found the coverage pays for legal defense, settlements and judgments when workers claim you charged excessive fees, made poor investment choices or mishandled benefits. Without it, employees can pursue their homes and savings in court.
Fiduciary Liability Insurance
Fiduciary liability insurance protects your business and personal assets from lawsuits when employees claim you mismanaged their retirement plan or charged excessive fees.
Shield your business from fiduciary lawsuits. Explore coverage options below.
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Updated: October 14, 2025
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Fiduciary Liability Insurance: Key Takeaways
When employees sue you for mishandling their 401(k) or charging excessive fees, fiduciary liability insurance handles your legal costs, settlements and any judgments against you.
Your policy won't cover intentional fraud, theft of plan assets, failure to fund contributions or any incidents you knew about before buying coverage.
While not legally required, fiduciary liability coverage protects personal assets from lawsuits with settlements exceeding $100 million.
What Is Fiduciary Liability Insurance?
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What Does Fiduciary Liability Insurance Cover?
Your policy covers five main coverage types:
Legal Defense Costs | Attorney fees, court costs and expert witness expenses, even for baseless lawsuits | Defense costs can quickly spiral into the hundreds of thousands before you reach a verdict |
Settlements and Judgments | Awarded damages up to your policy limits when you lose or settle a case | Protects your home and savings from being seized to pay employee claims |
Breach of Fiduciary Duty | Claims alleging you failed to act in employees' best interest through poor investment choices or conflicts of interest | The most common type of fiduciary lawsuit, with recent settlements reaching billions |
Administrative Errors | Lawsuits over enrollment mistakes, incorrect benefit calculations or failure to follow plan documents | Simple paperwork errors can trigger costly lawsuits from affected employees |
Regulatory Defense | Legal costs when the Department of Labor investigates your plan or alleges compliance violations | DOL audits have increased significantly in recent years, making this coverage essential |
MONEYGEEK EXPERT TIP
Fiduciary liability insurance covers the financial fallout when employees claim you mishandled their retirement benefits. This insurance jumps in when workers sue over investment losses, excessive fees or plan administration errors.
What Does Fiduciary Liability Insurance Not Cover?
Your policy has limits. Understanding what's excluded helps you avoid gaps in protection and shows you where you need additional coverage:
Intentional Wrongdoing
Your policy won't pay if you defrauded employees or intentionally violated ERISA regulations.
Theft and Embezzlement
Stolen plan assets fall under ERISA fidelity bonds, not fiduciary liability insurance. Fidelity bonds are separate coverage required by law for plans over $500,000.
Failure to Fund the Plan
If you didn't make the required contributions to the retirement plan, your policy won't cover resulting lawsuits.
Prior Known Claims
Any lawsuits or incidents you knew about before buying coverage are excluded from protection.
Bodily Injury or Property Damage
This policy doesn't cover physical injuries or damage to property. You need general liability insurance for those claims.
Coverage by Plan Size
Your coverage should match the plan size:
Small plans (under 100 participants) | $1 million | Protects against common claims like enrollment errors or minor investment disputes |
Mid-sized plans (100-500 participants) | $2 million to $3 million | Covers increased exposure from managing more money and employees |
Large plans (500+ participants) | $3 million to $5 million or higher | Provides protection when excessive fee lawsuits escalate. Wells Fargo's case settled for $3 billion while Boeing paid $57 million. These aren't rare outliers. |
Factors That Increase Your Coverage Needs
These factors determine how much you need:
Plan assets
Claims scale with assets under management. Plans with $50 million in assets face different exposure than those with $5 million.
Participant count
A plan with 50 people might face a $200,000 lawsuit. The same issue with 500 participants means a $2 million class action. More participants increase your exposure proportionally.
Industry risk
Healthcare and tech employers pay some of the highest 401(k) fees in the market, making them frequent lawsuit targets. Your fiduciary liability insurance premiums reflect this risk. Manufacturing companies face less scrutiny over plan fees.
Claims history
One Department of Labor audit or past lawsuit significantly increases your risk profile. If regulators already know your name, buy higher limits now.
YOUR NEXT STEP
Start with $1 million, then scale based on participant count and industry. health care and tech companies face more lawsuits than other sectors. As you grow, add coverage in $1 million increments. Review annually; 200 employees need less protection than 500, especially as settlements rise.
Fiduciary Liability Insurance Coverage: Terms and Conditions
Your policy has limits and exclusions. Know what you bought before you file a claim:
Policy Limits and Structure
Your policy limit covers all claims in one year, not per claim. A $2 million policy pays up to $2 million across all lawsuits. Three lawsuits costing $3 million mean you pay $1 million out of pocket. All claims share one pool; fiduciary policies use aggregate limits, unlike auto insurance, which separates coverage by incident.
Deductibles and Retention
Retention amounts range from $25,000 to $250,000 and work like deductibles. You pay this before your insurer's obligation begins and pay separately for each lawsuit. Three claims mean three retention payments before coverage kicks in.
Defense Costs
Your policy covers legal defense expenses, but structure matters. Some insurers pay defense costs outside your limit; others include them within it, reducing settlement funds. Outside-limits policies protect you better because legal battles won't drain your coverage.
Extended Reporting Period
When you cancel or switch insurers, you need protection for claims filed after coverage ends but stemming from your coverage period. Tail coverage handles this, typically costing 150% to 300% of your annual premium for one to six years of extended protection.
Claims-Made vs. Occurrence Policies
Fiduciary liability insurance operates claims-made; your policy must be active when the act occurs and when you're sued. Occurrence policies cover incidents during the policy period regardless of filing date. Maintain continuous coverage to avoid gaps in protection.
Consent to Settle
Your policy determines who controls settlement decisions. Some insurers need your approval; others don't. Hammer clauses penalize rejection; if you refuse your insurer's recommended settlement, you pay costs exceeding that amount.
Disclaimer: Coverage terms, conditions, and availability vary by state and insurer. Consult a licensed insurance professional to determine appropriate coverage for your situation.
Fiduciary Liability: Bottom Line
Fiduciary liability insurance includes legal costs and settlements when employees sue over retirement plan mismanagement. Settlements reach $100 million and threaten your home, savings and investments. Most plan sponsors buy coverage despite no legal requirement, as personal liability risk runs too high. This policy excludes intentional fraud and prior known issues.
Fiduciary Liability Insurance: FAQ
Common questions about protecting your assets from personal lawsuits:
What is fiduciary liability insurance?
Fiduciary liability insurance protects your business and personal assets when employees sue over retirement plan mismanagement or excessive fees. Your policy includes legal defense costs, settlements and judgments for ERISA duty breaches. Employees can pursue their home, savings and investments without coverage if they prove you mismanaged their retirement plan.
What does fiduciary liability insurance cover?
Your policy covers legal defense costs, settlements and judgments when employees sue over retirement plan mismanagement. This includes breach of duty claims, administrative errors, excessive fee allegations and Department of Labor investigations. Defense costs routinely exceed $300,000 before trial, making coverage essential for financial protection.
How much does fiduciary liability insurance cost?
Our research of insurance quotes from leading carriers shows that plans with under 100 participants pay $500 to $1,500 annually, mid-sized plans with 100-500 participants pay $1,500 to $3,500 annually, and large plans with 500+ participants pay $3,500 to $10,000 or more. Your premium depends on plan assets, participant count, claims history and industry risk.
Does law require fiduciary liability insurance?
No, but ERISA holds you personally liable for plan mismanagement. Employees can sue you directly and claim your home, savings and investments if you breach your fiduciary duty. Settlements have reached hundreds of millions. Most plan sponsors buy this coverage because the personal financial risk is too high to ignore.
Who needs fiduciary liability insurance?
Anyone managing an ERISA-governed employee benefit plan needs this coverage. This includes 401(k) plan sponsors, trustees, investment committee members, nonprofits offering retirement benefits and multiple employer plans. You're a fiduciary if you control plan investments, fees or service providers, even if "fiduciary" isn't in your job title.
Does fiduciary liability insurance cover Department of Labor audits?
Yes. Your policy includes legal defense costs when the Department of Labor investigates your plan or alleges compliance violations. This includes attorney fees, consultants and expert witnesses. DOL audits have increased significantly in recent years, and fighting one without insurance can cost hundreds of thousands in legal fees alone.
Can I be held personally liable for 401(k) plan mistakes?
Yes. ERISA puts your personal assets at risk. Courts can seize your home, savings and investments to pay employees. Wells Fargo paid $3 billion in 2018. Other settlements topped $100 million. Bankruptcy doesn't eliminate these judgments. One lawsuit without insurance coverage can cost you everything.
About Mark Fitzpatrick
Mark Fitzpatrick, a Licensed Property and Casualty Insurance Producer, is MoneyGeek's resident Personal Finance Expert. With over five years of experience analyzing the insurance market, he conducts original research and creates tailored content for all types of buyers. His insights have been featured in publications like CNBC, NBC News and Mashable.
Fitzpatrick holds a master’s degree in economics and international relations from Johns Hopkins University and a bachelor’s degree from Boston College. He's also a five-time Jeopardy champion!
He writes about economics and insurance, breaking down complex topics so people know what they're buying.