Fiduciary Liability Risks for Trade Associations Offering Employee Benefit Plans
Trade associations that offer employee benefits — like a 401(k), health insurance, or other perks — help meet the growing demand for more inclusive, flexible benefits. But by doing so, they also take on fiduciary responsibilities under the Employee Retirement Income Security Act (ERISA). Without proper safeguards, those responsibilities can expose the association and its leaders to legal and financial risk. That’s why comprehensive trade association insurance, including fiduciary liability coverage, plays a key role in protecting both the organization and its leadership.
Key Fiduciary Risks for Trade Associations
Running a benefit plan triggers legal responsibilities under ERISA, even for associations with a small staff or nonprofit status. Trade associations face exposure in areas such as:
- Failing to act with the care, skill, and diligence expected of fiduciaries
- Overlooking service provider oversight, including fees charged by third-party administrators or brokers
- Mishandling plan contributions or making questionable investment decisions
- Administrative errors — like missed enrollments or delayed filings — that can lead to costly consequences
Recent lawsuits have extended ERISA’s excessive fee claims into the health and welfare space, particularly related to prescription drug pricing and pharmacy benefit manager (PBM) fees. Although many cases haven’t advanced beyond initial pleadings, they highlight the importance of reviewing vendor agreements and cost structures carefully.
ERISA Compliance Obligations
Trade associations that sponsor or administer benefit plans must follow ERISA’s reporting and fiduciary standards. When those plans involve multiple employers – especially in membership based associations – they may also qualify as multiple employer welfare arrangements (MEWAs), which adds another layer of compliance.
Key obligations include:
- Filing Forms M-1 and 5500 on time and with accuracy
- Avoiding conflicts of interest and prohibited transactions
- Ensuring cost and service transparency, as outlined in the Consolidated Appropriations Act of 2024
Noncompliance can result in audits, penalties, and personal liability for those with plan oversight responsibility.
MEWA-Specific Liabilities
If your association offers benefits across multiple unrelated employers, it may be legally classified as a MEWA, even unintentionally. MEWAs are regulated by both ERISA and state insurance departments, and failing to recognize this status can create serious exposure.
State-level requirements often include licensing, solvency benchmarks, and filing obligations that don’t apply to single-employer plans. For trade associations, especially those offering self-funded coverage, it’s critical to understand whether your plan structure meets MEWA definitions — and how to stay compliant across jurisdictions.
Risk-Mitigation Strategies
Trade associations can reduce exposure by putting basic controls in place and maintaining clear documentation. Recommended strategies include:
- Defining fiduciary roles clearly and assigning responsibility in writing
- Keeping records of decision-making, especially around service providers and plan design
- Consulting ERISA counsel to review plan structure and compliance regularly
- Purchasing comprehensive trade association insurance that includes fiduciary liability coverage for potential legal costs, settlements, and other financial losses from claims tied to plan oversight
While insurance doesn’t prevent lawsuits, it protects the people and organization behind the plan when mistakes happen.
Protect Your Trade Association’s Benefits & Reputation
Benefit expectations have shifted. In 2025, employees want more than a basic plan.
Associations that help members or staff meet these expectations must also protect the programs they create. Fiduciary liability coverage does just that.
A tailored trade association insurance program that includes fiduciary liability coverage helps protect your mission, your assets, and the individuals who lead it.
Reach out to Moody Insurance Worldwide to find out how specialized coverage can support your mission and reduce your risk.
FAQ About Trade Association Insurance & Fiduciary Liability
What is fiduciary liability for trade associations?
It refers to the legal responsibility of managing benefit plans in the best interest of participants.
Does ERISA apply to trade associations?
Yes. If a trade association sponsors or administers a benefit plan, it must follow ERISA requirements.
What does fiduciary liability insurance cover?
It covers legal defense, settlements, and judgments from claims related to plan mismanagement, oversight failures, or conflicts of interest.
Is fiduciary liability insurance required under ERISA?
No. ERISA requires a bond to protect plan assets from fraud. Insurance is optional but strongly recommended to protect the individuals managing the plan.
How is fiduciary liability different from an ERISA bond?
An ERISA bond protects the plan. Fiduciary liability insurance protects the people who manage it.