ERISA Bonds

ERISA Bond – Protecting an Employee Benefit Plan

The Employee Retirement Income Security Act of 1974 (ERISA) is a law that has different rules and regulations for company benefit plans and those that manage the assets of those employee benefit plans, especially with regard to the investments of those plans.  The Department of Labor oversees the implementation of ERISA. The reason that ERISA was passed if that there was public concern that the retirement ability of employees were being jeopardized due to abuse and mismanagement of employee’s retirement funds.

ERISA Fidelity Bond Quote

Federal Erisa Bond Form
California ERISA Bond

Introduction to ERISA Bonds:

ERISA bonds are an essential component of any employee benefit plan. These bonds are required by the Employee Retirement Income Security Act (ERISA) of 1974 to protect the plan from losses due to fraud or dishonesty. There are various types of ERISA bonds, including fidelity bonds, fiduciary liability insurance, and crime insurance.

The requirements for ERISA bonds can vary depending on the size and complexity of the employee benefit plan. Generally, anyone who handles plan funds or other property must be covered by a fidelity bond. In addition, fiduciaries who have discretionary control over the plan's assets must also be covered by a fiduciary liability insurance policy. Crime insurance is another type of ERISA bond that can provide protection against losses due to theft or fraud by third parties. Understanding the requirements for each type of bond is crucial for ensuring compliance with ERISA regulations.

While ERISA bonds may come with a cost, the benefits of having them in place far outweigh the expenses. ERISA bonds provide peace of mind to plan sponsors and participants, knowing that their assets are protected from fraudulent activities. In addition, having ERISA bonds in place can improve the plan's credibility and reputation, making it more attractive to potential participants. Overall, ERISA bonds are a necessary investment for any employer who wants to safeguard their employee benefit plan.

Types of ERISA Bonds

ERISA bonds are a crucial requirement for all employee benefit plans in the United States. These bonds protect the plans from losses due to fraud, dishonesty, or other criminal acts committed by plan officials. ERISA bonds come in three main types: fidelity bonds, pension plan bonds, and health and welfare plan bonds.

Fidelity Bonds

Fidelity bonds are the most common type of ERISA bond. They protect employee benefit plans from losses due to fraudulent or dishonest acts committed by plan officials or employees. These acts may include theft, embezzlement, forgery, or other crimes committed in connection with the handling of plan funds or property.

Fidelity bonds typically cover all plan officials and employees who handle plan funds or property, including trustees, administrators, investment managers, and other fiduciaries. The bond amount must be equal to at least 10% of the plan's assets, with a minimum bond amount of $1,000 and a maximum of $500,000 per plan. If the plan holds employer securities, the maximum bond amount is $1 million.

Pension Plan Bonds

Pension plan bonds are a type of fidelity bond that specifically covers pension plans. These bonds protect the plan from losses due to fraudulent or dishonest acts committed by plan officials or employees in connection with the handling of plan assets. Pension plan bonds are required for all pension plans covered by ERISA, including defined benefit and defined contribution plans.

The bond amount for pension plans must be equal to at least 10% of the plan's assets, with a minimum bond amount of $1,000 and a maximum of $500,000 per plan. If the plan holds employer securities, the maximum bond amount is $1 million.

Health and Welfare Plan Bonds

Health and welfare plan bonds are a type of fidelity bond that specifically covers health and welfare plans. These bonds protect the plan from losses due to fraudulent or dishonest acts committed by plan officials or employees in connection with the handling of plan assets. Health and welfare plan bonds are required for all health and welfare plans covered by ERISA.

The bond amount for health and welfare plans must be equal to at least 10% of the plan's assets, with a minimum bond amount of $1,000 and a maximum of $500,000 per plan. If the plan holds employer securities, the maximum bond amount is $1 million.

In summary, ERISA bonds are a crucial requirement for all employee benefit plans in the United States. Fidelity bonds, pension plan bonds, and health and welfare plan bonds are the three main types of ERISA bonds. These bonds protect the plan from losses due to fraudulent or dishonest acts committed by plan officials or employees in connection with the handling of plan funds or property.

ERISA bond requirements for 401(k) Plans

ERISA bonds are required by the Employee Retirement Income Security Act (ERISA) of 1974. These bonds are designed to protect employee benefit plans from losses due to fraud or dishonesty. ERISA bonds are a type of fidelity bond, and they are required for all employee benefit plans subject to ERISA. The most common type of fidelity bond is an ERISA bond. ERISA bonds are the only type of fidelity bond that are obligatory.  However, these are only required when an employer offer an ERISA (the Employee Retirement Income Security Act) based employee benefit plan.  This protects employees who participate in the plan from being harmed by the mishandling of funds or fraud by the employer. One of the key provisions of ERISA is a requirement that for those that manage the assets of the retirement fund to have a fidelity bond issued on them.  This ERISA bond is a type of a fidelity bond, which protects the plan beneficiaries (the employees) from losses due to dishonesty or fraud by the persons managing the fund.

Coverage Requirements

ERISA requires that all individuals who handle plan funds or other property be covered by a fidelity bond. The bond must be in an amount equal to at least 10% of the plan's assets, with a minimum bond amount of $1,000 and a maximum bond amount of $500,000 per plan. If the plan holds employer securities, the maximum bond amount is $1 million.

The bond must cover losses resulting from fraud or dishonesty by plan officials or employees. The bond must also cover losses resulting from theft or disappearance of plan assets.

Compliance Requirements

ERISA requires that the bond be obtained from a surety company that is licensed to do business in the state where the plan is located. The bond must be in place at all times, and the plan sponsor must maintain records of the bond for at least six years after the termination of the plan.

Plan sponsors must also provide a written statement to the Department of Labor (DOL) certifying that the bond is in place and meets the requirements of ERISA. The statement must be provided within 30 days of the plan's establishment or the plan sponsor's appointment of a new fiduciary.

Penalties for Non-Compliance

Failure to comply with the ERISA bonding requirements can result in severe penalties. The DOL has the authority to assess civil penalties of up to $1,100 per day for each day that the bond is not in place, up to a maximum of $500,000 per plan.

In addition to civil penalties, plan sponsors and fiduciaries can be held personally liable for losses resulting from fraud or dishonesty if the plan does not have the required fidelity bond in place.

Overall, compliance with ERISA bonding requirements is essential for protecting employee benefit plans from losses due to fraud or dishonesty. Plan sponsors should work with a qualified surety company to ensure that they have the appropriate fidelity bond in place and that they are in compliance with all ERISA requirements.

How Does an ERISA Fidelity Bond differ from Fiduciary Liability Insurance?

The fidelity surety bond needed under ERISA specifically insures a plan against losses due to fraud or dishonesty (e.g., theft) by persons who handle plan funds or property.  Compare that with fiduciary liability insurance, which insures the plan against mismanagement of funds through negligence. Many plan fiduciaries are covered by both private fiduciary liability insurance as well as an ERISA fidelity bond.  However, an ERISA bond is the only thing that meets the requirements of the statute.

Can I get an ERISA bond from any bonding or insurance company?

You must get your bond from a surety that is listed on the Department of the Treasury's Listing of Approved Sureties, Department Circular 570 (available at fiscal.treasury.gov).  Neither the plan nor any interested party may have any control or significant financial interest, either directly or indirectly, in the surety or reinsurer, or in an agent or broker, through which the bond is obtained.

Understanding ERISA Fidelity Bonds

Every person who “handles funds or other property” of an employee benefit plan is required to be bonded unless covered under an exemption under ERISA. ERISA makes it an unlawful act for any person to “receive, handle, disburse, or otherwise exercise custody or control of plan funds or property” without being properly bonded. Fidelity bonding is usually necessary for the plan administrator and those officers and employees of the plan or plan sponsor (employer, joint board, or employee organization) who handle plan funds by virtue of their duties relating to the receipt, safekeeping and disbursement of funds.

ERISA Bond Facts

• An ERISA bond is a type of surety bond that is required by the Employee Retirement Income Security Act (ERISA) of 1974.
• The purpose of the ERISA bond is to protect employee benefit plans from misappropriation of funds by plan fiduciaries.
• The ERISA bond must be purchased from a surety company that is licensed to do business in the state where the plan is located.
• The amount of the ERISA bond must be at least 10% of the plan’s total assets, up to a maximum of $500,000.
• The ERISA bond must be renewed annually and the surety company must be notified of any changes to the plan’s assets.
• The ERISA bond does not provide coverage for any liability or losses incurred by the plan.
• The ERISA bond does not cover any claims made by the plan’s participants or beneficiaries.

The bonding requirement is not limited to just plan trustees, employees of the plan and employees of the plan sponsor. Bonding coverage may also be required for other persons, such as service providers to the plan, whose duties involve access to plan funds or decision-making authority that can give rise to a risk of loss through fraud or dishonesty. Where a plan administrator, service provider, or other person who must be bonded is an entity, such as a corporation or association, ERISA’s bonding requirements apply to the natural persons or person who “handles” the funds. The term “funds or other property” generally refers to all funds or property that the plan uses or may use to pay benefits to plan participants or beneficiaries. Plan “funds or other property” includes all plan investments including land and buildings, mortgages, and securities in closely-held corporations. It also includes contributions from any source, such as employers, employees, and employee organizations that are received by the plan, and cash, checks and other property held for the purpose of making distributions to plan participants or beneficiaries. A person is deemed to be “handling” funds or other property of a plan whenever his or her duties or activities could cause a loss of plan funds or property due to fraud or dishonesty, whether acting alone or in collusion with others. The general criteria for determining “handling” include: Physical contact with cash, checks or similar property; Power to transfer funds from the plan to oneself or to a third party; Power to negotiate plan property (e.g., mortgages, title to land and buildings or securities); Disbursement authority or authority to direct disbursement; Authority to sign checks or other negotiable instruments; or Supervisory or decision-making responsibility over activities that require bonding.

Some Interesting Statistics on ERISA Bonds:

1. The Employee Retirement Income Security Act (ERISA) requires employers to purchase ERISA bonds to protect employee benefit plans from fraud or mismanagement.
2. The ERISA bond must be in the amount of 10% of the plan’s assets, up to a maximum of $500,000.
3. According to the U.S. Department of Labor, there are over 690,000 ERISA-covered plans in the United States, with total assets of over $7.3 trillion.
4. As of 2019, the average ERISA bond cost was approximately $1,500 per year.
5. The most common type of ERISA bond is a fidelity bond, which is designed to protect employers from employee dishonesty.
6. Approximately 82% of ERISA-covered plans are self-insured, meaning they are not covered by an insurance company.

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