Plan administrators are the unsung heroes with all their work behind the scenes to keep everything glued together. And over the last two years of remote working, decentralized teams, and the absurdly fast shift to digital, it was inevitable that some errors would arise, especially when it comes to a benefits plan administrator.

Plan Administrators are responsible for the day-to-day management and operations of health benefits for their participants and beneficiaries.

They have had the tough job of keeping up with accurate records, enrolling workers in benefit plans, and making the necessary adjustments when needed. However, mistakes are inevitable because of human error – and when we have gone this long without any interpersonal human interaction, even the most minor errors can come with massive implications for your company – and the plan administrator themselves.

What is plan administrator liability coverage?

Plan administrator liability coverage covers businesses from errors and omissions that occur when employee benefit plans are administered. The plan administrator liability coverage would pay for the benefits that would have been payable under the health benefits plan, such as medical, dental, life insurance, disability, critical illness, accidental death, and vision benefits.

These are the types of clerical errors that can arise:

• Failure to enroll employees,
• Failure to report salary changes to an insurance company
• Failure to maintain employee records,
• Forgetting to add beneficiaries,
• Inability to add eligible family members,
• Failure to terminate employees from benefit plans

Plan administrator liability coverage is essentially a helpful safety net to protect from human error and oversight.

Failure to report salary changes to an insurance company

One of the big potential liabilities for a plan administrator is not reporting a salary change to the insurance company which can have lasting effects seen in the two examples below.

Example #1: Susan gets a $20,000 raise to $70,000 from $50,000. As the plan administrator, Tim didn’t report the change to the insurance company. Months later, Susan goes on disability, but the insurance company has based the amount of her disability coverage on her previous salary of $50,000 and not $70,000.

Example #2: Sticking with Susan here. Given her recent circumstances, another issue arises from this administrative oversight – this time with her life insurance. Because it was included in her benefits plan and is 2x her salary, this missed update with her raise means that if she suddenly passes, the insurance company will only base her life insurance payout on the $50,000 annual salary, and not the $70,000 increase her beneficiary is supposed to receive.

Coverage to protect against lawsuits

It’s important to note that a lawsuit stemming from a clerical error leading to disastrous results can name the administrator and the company.

Take in this example:

Phil is a new employee that requests to receive benefit coverage through his employer. However, Terry, the plan administrator, failed to add Phil to the plan during the onslaught of daily emails. As a result, Phil needs emergency eye surgery six months later where the health insurance company denies coverage for his medical claim because he wasn’t correctly enrolled. Phil is filing a lawsuit naming the company and Terry as well to recoup his losses.

Plan administrator liability coverage are generally riders added on to Commercial General Liability Policies to cover these types of financial losses causing financial injury.

Protects against the loss of electronic and paper records. 

Think back to that time you were scrambling through old filing cabinets or digital records looking for something? It’s pretty maddening, isn’t it? Now think about the repercussions if you accidentally erased an employee’s electronic file or lost their paper file?

Life happens. Plan administrator liability coverage helps any act, error, or omission unhappen.

Why was this a growing problem during the pandemic?

According to a study from Betakit, the majority of respondents said ‘that the pandemic is directly linked to accelerating digital transformation within their organization.’ To accelerate the digitization of the business is to get everyone on the same page.

People are falling behind with paperwork between juggling all the day-to-day tasks living and working at home and having everything jumbled into one blur with no distinct boundaries. And the challenge with distributed teams is that it is increasingly difficult to follow up with people. Not to mention the common feelings of brain fog and lower mental clarity that make these oversights amplified in the context that we are relying on these benefits now more than ever for our families.

Benefits administrators and human resources managers have complex jobs that require many tasks and an eagle eye for details. Having plan administrator liability coverage in your back pocket is an ace in the hole that you only really have to play when you need it most.

If there are gaps in your business coverage heading into the new year, it is worth re-evaluating where you stand – and what you might need to shore up the protection of your company and team members.