Tips On Mitigating Fiduciary Risks, Keeping Premiums Down 
Should insurance buyers give up the portion of their budget earmarked for employment practices liability insurance to pay for more fiduciary liability insurance?
Broker Jay Desjardins of Aon's Financial Services Group in Philadelphia doesn't advise it, but admits the subject has come up.
Instead of taking such drastic measures, experts recommend proactive management of benefit plans, and good preparation for the renewal process is essential, they say.
"I'm asking my insureds what steps they have taken to identify and mitigate loss related to mutual fund market timing and late trading issues," said Rhonda Prussack, vice president and product manager for fiduciary liability insurance at AIG's National Union in New York. "To me, what is not an acceptable answer is, 'Our mutual fund company has not yet been indicted,'" she said at an April meeting of the Professional Liability Underwriting Society.
"What are you waiting for?" she asks, stressing the need for proactive procedures. "I want to see that my client has met with mutual fund providers and gotten comfortable with the management. [And] if they do have funds that have had problems, I don't necessarily want to see that they yanked their investments" but that they consulted with attorneys and ERISA experts, determined a course of action, and documented it," she said.
Mr. Desjardins added that "risk management, benefits and HR departments have to understand that the underwriting process is going to be a much more strict process, and that their participation is important in bringing it to successful conclusion."
"These people need to be involved 60-to-90 days ahead of the renewal," he noted. "With all due respect to the CFO who may be present at the D&O meeting, that person may not be the most qualified to answer questions about [benefit] plans."
What questions can these folks expect?
Laurie Banes Lopes, senior vice president of field operations for AXIS Financial Insurance Solutions in Berkley Heights, N.J., rattled off this list at the PLUS symposium.
First, there are "The Enron questions," which include:
What is the philosophy of the company with regard to investing in the employers securities?
What percentage of the portfolio is invested in employer securities?
In the 401(k), do the employees have the ability to purchase employer securities, and what is the capability of employees to sell the security at any time? Are there any lock-up or blackout periods? Is there any period when employees are handcuffed, but directors and officers are not?
Then there are questions geared toward understanding the funding requirements of defined benefit plans, which include:
What are the funding levels?
If plans are underfunded, what will be the timing of getting that level up to speed?
What are investment return assumptions?
Then there are questions about changes in plan benefits or retiree benefits, which include:
Are there any plans to convert a defined benefit plan to a cash balance plan?
Is it mandatory that everyone convert?
Reproduced from National Underwriter Edition, September 16, 2004. Copyright 2004 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.
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