Fiduciary Liability Insurance and ERISA Exposure for Nonprofit Benefit Plans in 2026

If your nonprofit sponsors a 403(b) or 401(k) retirement plan, or a group health plan, a quiet line of personal liability runs straight to the people who oversee it. Under the Employee Retirement Income Security Act — ERISA — the board members, officers, and committee members who administer or make decisions about the plan are fiduciaries. That status carries the highest duty the law imposes, and it carries a consequence most directors never see coming: fiduciaries can be held personally liable for losses to the plan, with their own assets exposed. This is not a risk that lives on the balance sheet. It lives on the individuals who volunteered to serve.

A liability your other policies do not answer. Boards often assume this exposure is already covered somewhere in the insurance program. It usually is not. Directors and Officers liability responds to management and governance decisions, but standard D and O forms carry an ERISA exclusion precisely because benefit-plan fiduciary duty is its own animal. Employment Practices Liability answers for wrongful termination and discrimination, not imprudent plan investments. And the ERISA fidelity bond required of nearly every plan — more on that below — protects the plan against theft, not the fiduciary against a breach-of-duty claim. Fiduciary liability insurance is the distinct coverage built to sit in that gap, and many nonprofits discover it is missing only after a demand letter arrives.

The litigation climate has shifted toward mid-size plans. For years, excessive-fee and imprudent-investment class actions targeted only the largest plans. That has changed. Plaintiff firms filed 155 fiduciary class actions in 2025 alone, and excessive-fee filings have climbed each year — 43 in 2023, 47 in 2024, 51 in 2025, according to litigation trackers. More than 120 excessive-fee class settlements over the past three years total upward of $665 million. A newer wave of forfeiture cases went from 5 filings in 2023 to more than 40 in 2025. The Supreme Court's 2025 decision in Cunningham v. Cornell — a case built on a university 403(b) plan — made it harder to dismiss these suits early, which lowers the bar for plaintiffs to reach the discovery that makes litigation expensive. Regulators are active too: the DOL's benefits agency recovered $1.384 billion for plans in fiscal 2024, and 71 percent of its closed civil investigations ended in monetary results or corrective action.

The health plan front is newer and, for many boards, more surprising. The same fiduciary duties that govern retirement plans apply to the group health plan, and a fresh line of litigation alleges that fiduciaries overpaid for prescription drugs by failing to police their pharmacy benefit managers. The closely watched Lewandowski v. Johnson and Johnson case put that theory in front of the courts, and nearly 50 tobacco-surcharge suits filed across 2024 and 2025 show how quickly a new theory can spread to health-plan sponsors of every size. A nonprofit that has never questioned its health-plan vendors is standing on the same ground the plaintiffs are surveying.

The fidelity bond and fiduciary insurance are not the same tool. Confusion here is common and costly. ERISA section 412 requires almost every plan to carry a fidelity bond covering at least 10 percent of the funds handled, up to $500,000 — or $1 million where employer securities are involved. That bond reimburses the plan for losses from fraud or dishonesty. It does nothing for a director sued for a prudence failure. Fiduciary liability insurance is the counterpart: it defends and indemnifies the individual fiduciaries against claims of mismanagement, imprudent investment selection, or administrative error, and it covers defense costs, which in ERISA litigation often eclipse the settlement itself. One protects the plan; the other protects the people. A prudent program carries both.

Prudent process is the real defense. ERISA judges liability not by investment outcomes but by the process behind the decisions — which means governance is both the exposure and the protection. Charter a retirement or benefits committee with a written charter and a regular meeting cadence, and document those meetings in minutes that show what was reviewed and why. Benchmark plan fees and investment performance on a set schedule, and hold vendors — recordkeepers, advisors, pharmacy benefit managers — to that same scrutiny. Follow a written investment policy statement, and keep the paper trail that proves you followed it. Confirm the fidelity bond is current and correctly sized as plan assets grow. Underwriters read this discipline, and so do plaintiff firms; a documented prudent process is what turns a fiduciary claim from an open wound into a defensible position.

Fiduciary exposure rarely announces itself. It surfaces the day a participant's attorney questions a decision made years earlier, in a meeting no one documented. Illuminating that exposure before it becomes a claim is the work of PFTN's 4-Step Strategic Process: Strategic Discovery to map every plan your organization sponsors and who touches it, Risk Assessment to weigh your governance and coverage against today's litigation climate, Solution Design to align the fidelity bond, fiduciary liability insurance, and committee structure into one coherent program, and Ongoing Optimization to keep limits, bonding, and process current as your plans and their assets grow. The people who serve your mission on your benefits committee took on a real duty. They deserve to carry it with the protection that duty demands.

Sources: 401(k) Specialist — EBSA Recovers Nearly $1.4B in FY 2024 Via Enforcement Actions; Mayer Brown — The Evolution of Defined Contribution Plan Class Action Litigation in 2025; Encore Fiduciary — ERISA Fiduciary Litigation in 2025: Plaintiff Law Firms Continue the Frenetic Pace; NAPA-Net — ERISA Fidelity Bond vs. Fiduciary Liability Insurance: What is the Difference?; Quarles — ERISA Fiduciary Duties and Voluntary Benefits: New Litigation Trends; Carlton Fields — Supreme Court to Investigate Pleading Standard in ERISA Excessive Fee Litigation; Miller Shah — ERISA Fiduciary Lawsuits Continue Expanding Into 2026

— Ryan Mefford, President & Risk Advisor