Glossary

401(k) plans are the most common type of defined contribution retirement plan, in which employees choose to defer part of their pre-tax compensation. Under the typical 401(k), employees contribute anywhere from 1 percent to 15 percent of their pre-tax annual salary each year to the plan. In addition to this amount, many employers will match the employee's contribution, such as 50 percent of up to 6 percent of the employee's contribution. For example, if an employee contributes 6 percent of their salary to the 401(k) plan, the employer will contribute an additional 3 percent so that the employee will have saved a total of 9 percent of their annual salary (i.e., 6 percent contribution, plus 3 percent employer match). There are annual maximum amounts that employees can contribute as well as distribution restrictions prior to age 59.5.

401(k) fee claims allege that the individuals responsible for administering a company's 401(k) retirement plan have allowed the plan's service providers to charge excessive fees. Over many years, even a small difference in the size of the fee charged to administer 401(k) plans can dramatically affect an employee's balance at the end of that period. Assume that investments within a 401(k) plan return 5 percent annually over a 40-year span of time. Also assume that an employee contributed $7,500 each year to the plan. If the employee paid a 2 percent annual fee during this period, he or she would end up with a balance of $565,509.45. But if the annual fee were lowered to 1.5 percent—a mere ½ of 1 percent reduction—the employee's balance would rise to $634,127.08—a $68,617.63 difference. Claims involving 401(k) plan fees can be especially costly in the event that a number of affected employees bring such litigation in a class action format. Fortunately, 401(k) fee claims are covered by fiduciary liability policies because such plans are governed by the Employee Retirement Income Security Act (ERISA).

A face amount in an insurance context means the amount of insurance provided.

A facility emergency coordinator is the representative of a facility covered by environmental law, such as a chemical plant, who participates in the emergency reporting process with the Local Emergency Planning Committee (LEPC).

A factory mutual is a mutual insurance company organized for the purpose of insuring manufacturing businesses and industries. It refers to a group of insurance companies that provide property insurance and other risk management services (i.e., risk engineering services and loss-prevention standards designed to protect facilities, equipment, and business operations), focusing on risks associated with manufacturing processes. This includes fire and other property losses as well as equipment damages, business interruptions, and natural disasters. The term is commonly associated with FM Global.

Facultative automatic is a form of property and casualty (P&C) reinsurance that is a hybrid between facultative and treaty. A bordereau of risks ceded is submitted to the reinsurer, which has limited rights to decline individual risks.

A facultative obligatory treaty is the hybrid between the facultative versus treaty approach. It is a treaty under which the primary insurer has the option to cede or not cede individual risks. However, the reinsurer must accept any risks that are ceded.

Traditional facultative reinsurance is a form of reinsurance whereby each exposure the ceding company wishes to reinsure is offered to the reinsurer and is contained in a single transaction. The submission, acceptance, and resulting agreement is required on each individual risk or portion of an individual risk that the ceding company seeks to reinsure. That is, the ceding company negotiates an individual reinsurance agreement for every policy it will reinsure. However, the reinsurer is not obliged to accept every or any submission.

A failure to collect contributions exclusion is a standard exclusion in fiduciary liability policies that precludes coverage for claims caused by a fiduciary's failure to collect contributions owed to a pension or benefit plan. The exposure most often arises in multi-employer, union-sponsored plans. However, because the collection of pension and benefit plan contributions from companies participating in a multi-employer plan is an activity within an insured's control, such claims are excluded because insurers do not intend to provide "financial guarantee insurance." Nevertheless, many of the forms do provide defense coverage to allegations that the insured(s) failed to collect contributions owed to a benefit plan.

A failure to fund in accordance with ERISA exclusion is a standard exclusion in fiduciary liability policies that precludes coverage for claims alleging failure to fund in accordance with the guidelines prescribed by the Employee Retirement Income Security Act (ERISA). The rationale for the exclusion is that it is contrary to public policy to provide insurance coverage for intentional violations of federal law. However, most fiduciary liability policies do provide defense coverage when such allegations are made.