You have some potential liability as the business owner or fiduciary of a pension plan. For example, you may be held responsible if the IRS disqualifies the plan for failure to comply with government pension regulations or if you've made some bad investments with the funds.
You can protect yourself from future liability through insurance. If you have never been sued for violation of your fiduciary responsibility, an "employee benefits coverage" rider to your business insurance may be advisable. On the other hand, if you have encountered legal problems regarding your pension plan, you'll need a "fiduciary liability" policy — about $1,500 in annual premiums gives you $1 million in coverage, which should be sufficient for a small benefit plan.
Tip: Make sure the coverage stipulates that the insurer will defend you in the event of a lawsuit.
Tip: Get the organization handling your pension plan to agree, in writing, to handle certain responsibilities, such as updating the plan where necessary, filing IRS reports and seeing that non-discrimination tests are met. Check that their insurance coverage is sufficient to protect you.
Tip: As an alternative or supplement to insurance, consider an independent audit of your plan so as to uncover any fatal flaws. This will enable you to remedy them voluntarily.
If you would like to discuss any of the issues raised in this summary