Plan sponsors often assume that the routine mechanics of a retirement plan, the payroll feeds, the contribution reconciliations, and the forfeiture accounting are administrative details handled quietly somewhere inside the recordkeeping system. A recent enforcement action brought by the United States Department of Labor (DOL) demonstrates how quickly those routine functions can become the foundation for personal liability, and why fiduciary liability coverage has shifted from a discretionary purchase to a practical necessity. The matter, reported by the National Association of Plan Advisors, involved the misuse of plan forfeitures, a cascade of administrative failures, and an effectively abandoned 401(k) plan (Adams 2026). For employers and plan officials, the case offers an unusually clear illustration of the exposures that fiduciary liability coverage is designed to address.
The Facts of the Case
According to the complaint summarized by Adams (2026), the plan’s third-party administrator identified what appeared to be discrepancies between participant contribution records and the wage data reported on employee W-2 forms. In response, nearly $7,000 was withdrawn from the accounts of five participants and deposited into a forfeiture account, and portions of that sum were then reallocated to other participants. The reallocation, however, rested on a false premise. The original contribution figures were, in fact, correct. The apparent discrepancy stemmed from inaccurate payroll and W-2 information that the employer and the plan fiduciaries had themselves provided (Adams 2026).
Because the improper forfeitures were never reversed, the affected accounts remained misallocated. The five participants were deprived not only of vested benefits they had earned but also of the investment earnings those balances would have generated had they stayed properly invested in the participants’ individual accounts (Adams 2026). The DOL further alleged that the fiduciaries acknowledged the error, represented that it would be corrected, and then simply failed to act.
The forfeiture problem proved to be only the beginning. The agency asserted that the plan had received no deposits since at least August 2021, that participants could not obtain distributions, and that neither participants nor service providers could reach the responsible fiduciaries. Required Form 5500 filings were missing, and the plan lacked the fidelity bonding that ERISA mandates. The result, in the DOL’s characterization, was an effectively abandoned plan still holding more than $430,000 in participant assets (Adams 2026). The defendants, according to the report, were the sponsoring company, its president and owner, and his son, who served as chief financial officer (Adams 2026). It is important to note that these are allegations contained in a complaint and have not been adjudicated.
The Fiduciary Breaches the Department Alleged
ERISA imposes on plan fiduciaries some of the most demanding standards of conduct in American law. A fiduciary must act solely in the interest of participants and beneficiaries and for the exclusive purpose of providing benefits and defraying reasonable plan expenses, a standard known as the duty of loyalty (ERISA Section 404(a)(1)(A); 29 U.S.C. Section 1104). A fiduciary must also act with the care, skill, prudence, and diligence of a prudent person familiar with such matters and must follow the documents governing the plan (ERISA Section 404(a)(1)(B) and (D); U.S. Department of Labor 2021). The DOL alleged that the defendants violated each of these obligations, that they failed to maintain an adequate fidelity bond, and that they failed to file the plan’s required disclosures (Adams 2026).
The complaint also invoked ERISA’s liability provisions for the conduct of fellow fiduciaries. A fiduciary who knowingly participates in or conceals another fiduciary’s breach, who enables that breach through a failure to meet personal duties, or who knows of a breach and makes no reasonable effort to remedy it becomes liable for the other fiduciary’s conduct (ERISA Section 405(a); U.S. Department of Labor 2021). For their alleged failures, the fiduciaries faced restoration of plan losses and lost opportunity costs, removal from their positions, the appointment of an independent fiduciary, and permanent injunctions barring them from ever serving an ERISA plan again (Adams 2026). Fiduciaries who breach their duties are personally liable to make good any resulting losses to the plan (ERISA Section 409; 29 U.S.C. Section 1109; U.S. Department of Labor n.d.). That personal exposure, rather than any institutional penalty, is what makes fiduciary liability coverage central to this story.
Why This Is a Fiduciary Liability Matter, Not a Fidelity Bond Matter
A careful reader will notice that one of the DOL’s counts was the failure to maintain a fidelity bond, and may reasonably ask whether this is a bonding story rather than a fiduciary liability coverage story. The distinction is essential, and the DOL itself has drawn it plainly. An ERISA fidelity bond required under Section 412 insures the plan against losses caused by fraud or dishonesty, such as theft or embezzlement, committed by persons who handle plan funds (U.S. Department of Labor 2008). It protects the plan, not the people running it, and it responds only to dishonest acts (U.S. Department of Labor n.d.). The required bond must equal at least 10 percent of the funds handled, with a minimum of $1,000 and a maximum of $500,000, rising to $1,000,000 for plans that hold employer securities (U.S. Department of Labor 2008).
Fiduciary liability insurance is an entirely separate instrument. As the agency states in its guidance, the fidelity bond is not the same thing as fiduciary liability insurance, which instead protects against losses caused by breaches of fiduciary responsibility (U.S. Department of Labor 2008). Such coverage is permitted, but not required, under ERISA Section 410, which allows a plan or an employer to purchase insurance covering losses that arise from a fiduciary’s acts or omissions (U.S. Department of Labor 2008). In other words, the bond is mandatory and guards the plan against theft, while fiduciary liability coverage is elective and guards the fiduciaries against the consequences of mismanagement.
Applied to the facts, the difference is decisive. The roughly $7,000 misallocation did not flow from dishonesty. It flowed from bad payroll data and a failure to correct a known error, which is precisely the kind of breach a fidelity bond does not address. A bond would not have shielded the company’s leaders from the DOL’s claims, nor would it have answered the allegations of imprudence, disloyalty, and abandonment. The exposure on display here, personal liability for breach of duty, is the exposure that fiduciary liability coverage exists to meet.
What Fiduciary Liability Coverage Protects, and What It Does Not
Fiduciary liability coverage typically responds to claims that a plan fiduciary breached a duty owed under ERISA, funding the cost of legal defense and, where appropriate, settlements or judgments. Defense costs alone can be substantial in a contested DOL action, and they often begin to accrue long before any finding of wrongdoing. For a closely held employer whose owners serve as the plan’s named fiduciaries, the prospect of defending a federal lawsuit out of personal funds is precisely the risk that fiduciary liability coverage is meant to transfer.
Candor about the limits of any policy is essential, however. Fiduciary liability coverage commonly excludes deliberate fraud and knowing or willful violations, and the DOL’s allegations of knowing participation and concealment could implicate those exclusions if they were ultimately proven. Court-ordered restoration of plan losses can also raise questions of insurability, since the law generally disfavors insuring a party against the return of funds it was never entitled to hold. Even so, defense costs are frequently advanced under a reservation of rights until a matter is adjudicated, which is often the practical value participants and fiduciaries feel first. The prudent reading is that fiduciary liability coverage is a powerful backstop rather than a license for inattention.
Lessons for Plan Sponsors
The enduring lesson of this case is that the most consequential fiduciary failures rarely look dramatic at the outset. They begin with an unreconciled payroll file, a forfeiture posted in error, a correction promised and forgotten, a filing missed (Adams 2026). ERISA does not recognize “somewhere in the system” as a defense, and the duties of loyalty and prudence attach to the people who agreed to serve, however small the plan. Two protections work together. Sound operational discipline, accurate data, timely remittances, prompt correction of errors, and current filings reduce the likelihood of a breach. Fiduciary liability coverage stands behind that discipline so that an honest mistake does not become a personal catastrophe.
For employers weighing that second protection, FiduciaryLiabilityCoverage.com offers a focused starting point. The site connects plan sponsors and fiduciaries with fiduciary liability coverage tailored to the realities of ERISA exposure, helping the people who serve their plans understand what to buy, how much to carry, and how the coverage fits alongside the fidelity bond the law already requires. In a regulatory environment where the DOL continues to pursue the quiet failures that deprive participants of their benefits, securing the right fiduciary liability coverage is one of the clearest steps a responsible plan sponsor can take.
~ C. Constantin Poindexter, MA, JD, CPCU, AFSB, ASLI, ARe, AINS, AIS, CPLP
Bibliography
- Adams, Nevin E. 2026. “DOL Sues 401(k) Plan, Fiduciaries for Forfeiture Misuse, and More.” National Association of Plan Advisors, June 1, 2026. https://www.napa-net.org/news/2026/6/dol-sues-401k-plan-fiduciaries-for-forfeiture-misuse–and-more/.
- Employee Retirement Income Security Act of 1974, 29 U.S.C. Sections 1104, 1105, 1109, 1110, 1112 (ERISA Sections 404, 405, 409, 410, 412).
- U.S. Department of Labor. 2008. Field Assistance Bulletin No. 2008-04: ERISA Fidelity Bonding Requirements. Employee Benefits Security Administration. https://www.dol.gov/agencies/ebsa/employers-and-advisers/guidance/field-assistance-bulletins/2008-04.
- U.S. Department of Labor. 2021. Meeting Your Fiduciary Responsibilities. Employee Benefits Security Administration. https://www.dol.gov/agencies/ebsa/about-ebsa/our-activities/resource-center/publications/meeting-your-fiduciary-responsibilities.
- U.S. Department of Labor. n.d. “Protect Your Employee Benefit Plan with an ERISA Fidelity Bond.” Employee Benefits Security Administration. Accessed June 3, 2026. https://www.dol.gov/sites/dolgov/files/ebsa/about-ebsa/our-activities/resource-center/publications/protect-your-employee-benefit-plan-with-an-erisa-fidelity-bond.pdf.
- Poindexter, C. Constantin. “A PRACTICAL UNDERWRITING GUIDE ERISA Fidelity Bonds“, Surety One, Inc. 2026