Fidelity Bond Web-sites

[austin3515]

Is there a web-site from The Hartford or Travlers, etc. that I can provide clients where they can fill out a short form on line and get a fidelity bond? It seems to me if it was that easy it would be easier on me instead of telling them to call their agent, getting them involved etc. I'm sure the agents would love me for it.

[BG5150]

We work with a company that will underwrite bonds for our clients. We fill out the paperwork (online maybe?) and the client sends the check. We get a couple bucks for it from the insurance company (fully disclosed in our service agreements, of course).

Small value added service for not that much work.

[austin3515]

I assume you have an insurance license though, correct? We don't. Seems to me the HArtford should just have a web-site to do this...

[BG5150]

I'm not sure it has anything to do with us having insurance license. We are kind of like the middle man.

Company A is insurance company that sells bonds.

Client X needs a bond.

BG's company goes to company A (website?), downloads the form, fills most of it out and gives it to client X. Client X signs it, sends it back to us. They either send us a check with it or they send the check directly to Company A. We send the p/w to Company A after we make sure everything is filled out.

Company A pays us like $8,000 per policy. Or maybe $3. Or something in between.

[austin3515]

How is that not an insurance commission? Anyway, no skin off my back, I'm sure you did your homework. Also, I'm sure the insurance company would never pay a fee if it wasn't allowed to.

I just hope you had a typo - $8,000 fee for the bond? Maybe I will start selling these bonds

[Bird]

We do the same thing; I don't think there's any harm in telling you it is Colonial Surety. The bonds are a decent deal if you get the 5 year prepaid ones. Being able to do it for them (clients) is excellent. We do get a "finders fee" (I think that's what they call it, which we don't care about but I suppose it helps cover the time on the paperwork).

Be forewarned that they crap up the process and try to trick you/clients into buying fiduciary liability insurance; you have to say "no" several times. "You want fries wit dat?"

[Lou S.]

I think we do the same as Bird. We also tell them they can call their own carrier but if they don't offer it then here is a link to a website or some such thing like that. It a convenience thing for the client more than anything else. We have no expectation of getting rich off the minimal finder fee which I think is $50 or less.

[BG5150]

How is that not an insurance commission? Anyway, no skin off my back, I'm sure you did your homework. Also, I'm sure the insurance company would never pay a fee if it wasn't allowed to.

I just hope you had a typo - $8,000 fee for the bond? Maybe I will start selling these bonds

I'm in the same boat with Bird & Lou. They are simply finder's fees.

And we certainly do not get paid 8 grand apiece. Probably a little more than 3 bucks, but not much more.

[Lou S.]

And we certainly do get paid 8 grand apiece.

Damn, we're using the wrong carrier.

[BG5150]

And we certainly do get paid 8 grand apiece.

Damn, we're using the wrong carrier.

Ooops. Fixed original post.

[austin3515]

BG I cannot understand that last sentence which you have said the same twice. Not sure if you want to explain? You've got curiosity piqued.

[austin3515]

Still not following your OP. How could you get 8,000 for a $300 policy?

[BG5150]

And we certainly do not get paid 8 grand apiece. Probably a little more than 3 bucks, but not much more.

This is what was supposed to be typed. I guess my attempt a humour has failed. I won't quit my day job.

[austin3515]

Now that is hilarious

[Peter Gulia]

I am no apologist for insurance sales. But maybe I'll learn something today.

Is it always or generally so that fiduciary-liability insurance is a bad deal, or is it possible that some of the retirement plans would benefit from getting a pot of money to recover from when a fiduciary breaches his or her responsibility to the plan?

[austin3515]

Perhaps you can answer this question: In 2013, how many plans whose assets were invested in mutual funds on a standard platform, with assets of less than $20M, were actually sued for a fiduciary breach? To read all this nonsense on "fiduciary liability!!!" you would think there were hundreds if not thousands. I suspect business owners have uninsured risks that dwarf the likes of their fiduciary liability with respect to the plan without a second thought.

I should think by now I would have witnessed something in my career if it really was so prevalent.

[Lou S.]

I am no apologist for insurance sales. But maybe I'll learn something today.

Is it always or generally so that fiduciary-liability insurance is a bad deal, or is it possible that some of the retirement plans would benefit from getting a pot of money to recover from when a fiduciary breaches his or her responsibility to the plan?

I'm sure there are plans that would benefit from fiduciary liability insurance.

I also suspect that the vast majority of plans that are run like austin describes that fiduciary liability insurance is very likely an added expense for very little benefit.

edit to add - this just my humble opinion and your mileage may vary

[Belgarath]

I don't think "fiduciary liability insurance" pays the plan, nor does it provide the plan benefits. That's what the ERISA fiduciary bond is for (although I never understood why only 10% coverage required - that leaves room for mighty big losses that may not be recoverable!)

Fiduciary liability insurance only covers the fiduciary? Although maybe I'm misunderstanding what is being said - perhaps you mean if the fiduciary is personally sued, and doesn't have sufficient assets to pay the plaintiff(s) for the breach, that the plaintiff(s) can recover from any payment to the fiduciary under the policy?

Or maybe I just need to go home and have a glass of wine, and hopefully gather my wits by Monday.

[austin3515]

OK, you got me. I meant how many fiduciaries were sued. Answer to my question: None. I don't know that for sure of course, but I'm pretty sure

[Belgarath]

Austin - I'm not so sure about that, although really I guess the ERISA lawyers could provide a solid answer. But it seems to me that I keep reading accounts of the DOL suing fiduciaries for various breaches, although perhaps most of those are criminal, which I presume the fiduciary liability policy wouldn't cover.

[BG5150]

^ I think most of those are when the fiduciaries are investing pooled assets, or when stock is involved, and not when they had 12 choices on the Prudential or Great West or ING platforms, etc.

[Peter Gulia]

ERISA fiduciary-liability insurance pays a covered loss into the plan (making the money available for allocation to a participant's or beneficiary's account). If the insurance contract does not preclude the insurer's recourse against a breaching fiduciary, the premium can be paid by the plan. If the buyer chooses a non-recourse provision, the plan still can pay the premium except the portion that is attributable to the non-recourse provision.

Among the reasons participants with good fiduciary-breach claims don't pursue those claims is a belief that the breaching fiduciary doesn't have enough reachable assets to make good the plan's losses. (That's especially so if the fiduciary has a spouse, which means that an otherwise allowable offset against the fiduciary's participant account is restrained by ERISA section 206(d)(4)©. Likewise, having a spouse can allow asset-protection and asset-shifting techniques.)

And not everything necessarily requires litigation. A few years ago, I saw a situation in which a fiduciary's obvious breach resulted in a six-figures loss to a participant's account. The fiduciary tendered the participant's short letter to the insurer. The insurer simply paid up. Had the fiduciary's breach not been insured, it is the participant who would have suffered the loss because the employer had no money in the till and the business owner had spent the most recent profit (paying his daughter's tuition).

Could a fiduciary decide that the combination of a realistic possibility that the fiduciary might breach its responsibility and that a breach might result in a loss that the fiduciary cannot pay makes it prudent to protect the plan and its participants against that risk?

[austin3515]

Never sending in 401k money is the one that I have seen in the small market. I have to assume that personal gain cannot be a consequence of the breach in order for insurance to kick-in. And of course that's where the small plan market gets into trouble - putting their own interests ahead of the plans (i.e., investing the plan's assets in real estate that they use in the summer, never sending in 401k, loaning money from the plan to another business they own for cash flow crunch, etc). I just can't see how the insurance policy would cover such breaches, but I would be curious to hear from someone more in the know. Now, if you invest in a non-prohibited transaction investment that becomes worthless, or perhaps you default a 65 year-old's $500,000 rollover into the aggressive growth fund just before the bubble bursts, then I can see where fiduciary insurance would pay-up if it came to it.

[Peter Gulia]

austin3515 makes a good point: ERISA fiduciary-liability insurance doesn't respond to a situation that involves an insured's improper personal benefit.

The insurance might be helpful if an insured ineptly (but not corruptly) allows a non-exempt prohibited transaction - such as allowing a service provider to take undisclosed or disclosed but unreasonable compensation. Although in theory the plan should recover from the party in interest that has the proceeds of the PT, sometimes that person is insolvent.

[Peter Gulia]

To answer my own question, it seems that one considering buying or foregoing fiduciary-liability insurance would evaluate how likely it is that she will do an incapable (but not corrupt) job in meeting her fiduciary duty.