To guarantee they are protected in the case of theft or fraud, employee benefit programs like 401(k) plans are required to get a bond. It is called an ERISA fidelity bond, and it protects plan participants against any losses due to dishonesty or fraudulent activity by a person handling plan funds.
What is an ERISA Bond?
The Employee Retirement Income Security Act (ERISA) requires every person who “handles funds or property” in an ERISA-regulated plan, including 401(k) plans, to be bonded. This requirement, known as a fidelity bond, protects the plan against losses caused by fraud or dishonesty. It can include theft, embezzlement, forgery, and other crimes. It is important to note that this bond only covers a small percentage of the losses caused by a wrongful act. ERISA bonds are only available from insurance companies on the Department of the Treasury’s listing of approved sureties. They must also be purchased through an independent insurance broker not affiliated with the insured.
Who Needs an ERISA Bond?
ERISA bond is required by law for anyone who handles funds or other property belonging to employee benefit plans, including 401(k) plans. It includes plan trustees, plan sponsors, fiduciaries, plan service providers and their directors, officers and employees. Under ERISA, every person who handles plan funds needs to be bonded equally to at least 10% of the funds they are taking. If the plan includes non-qualifying assets, the bond amount is either 10% of those assets or their value, whichever is greater. For example, let’s say that the company plan has $1 million in funds. The plan trustee, fiduciary and administrator represent three company employees with access to the $1 million and the ability to transfer funds, approve distributions and sign checks. Under ERISA guidelines, each individual must be bonded for at least $100,000. This amount represents 10% of the $1 million that is owned by the plan. ERISA bonds must be obtained from a surety provider or reinsurer on the Department of Treasury’s Listing of Approved Sureties.
How Much Coverage Do I Need?
ERISA, a federal statute, governs most private sector, employer-sponsored retirement and welfare benefit programs. Among its many protections is requiring companies to provide standardized information about their plans to employees and to ensure that plan participants can access their benefits, even if the company goes bankrupt. A fidelity bond is a type of insurance that protects an ERISA-qualified plan against losses due to dishonest acts, such as trustee fraud or embezzlement. It reimburses the plan for losses up to its coverage amount, typically 10% of its assets. An ERISA fidelity bond must be obtained for all persons who handle or can access plan funds. It includes plan trustees, payroll processors, and financial institutions insured by the Federal Deposit Insurance Corporation (FDIC). It must be for 10% of the total funds handled or accessible by these persons in a plan year, not including any deductibles or other similar features.
Where Can I Get an ERISA Bond?
ERISA bonds are required for anyone handling funds or property associated with an employee retirement plan, such as a 401(k) or pension fund. This requirement was established by the Employee Retirement Income Security Act (ERISA) to protect plans from loss due to fraud or dishonesty. Typical fiduciaries who need to get bonded include plan trustees, sponsors and employees. However, some exempt individuals exist, such as registered brokers and SEC-registered dealers. The assets of your particular plan determine the level of coverage you require. Typically, the minimum bond amount is 10% of the plan assets. You can obtain an ERISA fidelity bond with a surety or insurance company. They can help you through the process and offer competitive rates. They can also help you get a bond with bad credit.