We recently discussed some Fiduciary Liability Insurance Considerations. Fiduciary Liabilities: Are You Covered? reiterates that your D&O Insurance and your ERISA Fidelity Bond will not indemnify you personally from benefit plan claims and discusses how, prior to Enron, the need for fiduciary liability coverage was not as urgent as it is today:

Since then, the floodgates have opened, with plaintiffs' lawyers filing dozens of lawsuits against retirement plan sponsors and their executives who, they claim, committed a variety of fiduciary mistakes, from countenancing exorbitant vendor fees to stocking their plans with inappropriate investment options. Some of the cases have been dismissed, but many continue to grind their way through the court system. All the while, defense costs are accruing.

Indemnification provisions and agreements are also used to protect fiduciaries. However, the courts have begun to strike down indemnification agreements [see Johnson v. Couturier (9th Cir. July 27, 2009) and Fernandez et al. v. K-M Industries Holding Co., No. C 06-7339 CW (N.D. Cal. Aug. 21, 2009)].

Despite the risks, many small ESOP companies that have internal trustees still do not carry fiduciary liability insurance:

To be fair, the smaller your company and its retirement plan, the smaller your exposure and the less likely it is that you will attract the attention of plaintiffs' attorneys, who tend to focus on deep-pocketed defendants, notes Joseph Faucher, an attorney at a Los Angeles–based law firm. Still, there are a lot of corporate executives at risk, and most CFOs would be hard-pressed to work up enthusiasm for being among them. "Even if you are sued and upheld by the courts," notes Dart, "the cost of defending these cases can be significant." In the Johnson lawsuit, company officers and directors had $5 million of insurance coverage protecting them, but burned through that well before the litigation was resolved.

Fiduciary liability insurance is usually purchased by the company and depends on the amount and makeup of your plan assets and your claim history:

Chubb, Travelers, and AIG's Chartis subsidiary are major players in the fiduciary-liability insurance market, although there are many other companies that offer the policies as well. The cost, usually borne by the plan sponsors, is highly dependent upon the size of your retirement plan, your claim history, and your plan's investment lineup. A plan offering company stock, for example, will likely be deemed a higher risk than one that does not, notes Cathy Cummins, managing director and fiduciary-liability national practice leader at Marsh, the insurance-brokerage and risk-advisory unit of Marsh & McLennan Cos. However, she says, fiduciary-liability policies cost "significantly less" than D&O policies. Pricing is stable right now, she adds, and within historical norms.

As a bonus, fiduciary-liability policies typically cover liabilities related to all kinds of employee benefits programs, not just retirement plans. They can, for example, cover health and welfare plans and nonqualified executive-compensation plans. Just be sure, Cummins notes, to disclose to the underwriter which plans you offer and expect to be covered.

While fiduciary-liability insurance is usually paid for by employers that sponsor pension plans, Faucher notes, plans themselves can buy the insurance for their fiduciaries if the insurer retains recourse against fiduciaries who breach their duty to the plan. He suggests that if you are a plan fiduciary, make this type of insurance part of your compensation package. Carrying it is a relatively simple way to protect yourself from an increasingly complex liability.