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Scott

VEBA's Purchase of Fiduciary Insurance

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Is there anything that would prohibit a VEBA from paying premiums on a fiduciary insurance policy? ERISA Section 410(b) allows a plan to purchase insurance for its fiduciaries as long as the insurance permits recourse against the fiduciary, so it appears to be OK under ERISA. Just wondering if there is anything under the Code's VEBA rules that would prohibit this.

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Scott:

To my knowledge, this would be okay, even under the rules for a VEBA.

I can see where you would be concerned, in that the VEBA, as a non commercial insurer, has even stricter fiduciary responsibilities than those of a commercial insurer.

It must be extra careful to keep administrative costs reasonable, and benefits higher for the participants.

Don Levit

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If there's recource against the fiduciary, it's not what I would consider fiduciary insurance (that is insurance that protects the fiduciary), but insurance to protect the plan from harm caused by the fidicuary's action. If the idea is to protect the fiduciary, that insurance should be bought with corporate or the individual fiduciary's funds.

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Thanks for the replies. This is an area I haven't dealt with before, but after doing some digging, it appears that it is common (and allowable) for a plan to pay the premiums for fiduciary liability insurance with a recourse provision, but for the policy to include a rider under which the insurer waives its right of recourse, the premiums for the rider paid for by the company or the individual fiduciaries. Does anyone see problems with that?

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Seems messy, but it might work if it is really important to have the VEBA pay something.

The VEBA can't pay for or subsidize the fiduciary's insurance benefit. If the rider is fairly priced (that is, it can be clearly verified by the VEBA that there is no subsidy from the VEBA), and if the fiduciary pays for the rider directly out of its own funds, it might be ok. The safest approach would for an independent fiduciary to authorize the VEBA's contract and the expenditure for the VEBA (because it could be seen as indirectly benefiting the fiduciary, so that the fiduciary shouldn't make that decision). It shouldn't be a reimbursement deal.

I tend to take a fairly conservative approach to fiduciary issues (and most things). I wouldn't handle it the way you describe, because it raises fiduciary issues. I would structure it to keep the VEBA out of it, by having the company just purchase the insurance as a separate policy for the fiduciary outright.

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