Beneco Bulletin – Learn More About ERISA Fidelity Bond Requirements
Our clients look to us for guidance and education regarding compliance and interpretation of complex laws and regulations set forth by regulatory authorities, specifically the Employee Retirement Income Security Act (ERISA). One common question we receive is “what is the mandatory bond regulation and requirement?”
Under ERISA, every fiduciary of an employee benefit plan and every person who handles funds or other property of such a plan must be bonded. This is stated in section 412 of ERISA and is designed to protect employee benefit plans from risk should a fiduciary or plan official commit fraud or engage in dishonest practices with plan assets.
ERISA requires that a plan official must be bonded for at least 10% of the amount of funds he or she handles. This amount is subject to a minimum bond amount of $1,000 per plan. Effective January 1, 2008, the maximum bond amount that can be required is $1,000,000 per plan.
The bond (sometimes referred to as an ERISA fidelity bond) covers all aspects of fraud including, but not limited to, theft, embezzlement, forgery, misappropriation of funds, and larceny. The bond must provide recovery of loss regardless of whether or not the person committing the fraudulent act personally benefits and regardless of whether or not the fraudulent act is punishable as a crime or misdemeanor.
An ERISA fidelity bond is not the same as fiduciary liability insurance. The ERISA fidelity bond specifically insures against fraud or dishonest practices by plan officials. Fiduciary liability insurance generally insures the plan against potential losses due to infringements of fiduciary responsibilities. Please note that fiduciary liability insurance is not required under ERISA law.
ERISA fidelity bonds cannot be obtained from any bond or insurance company. They must be placed with a surety or reinsurer named in the Department of the Treasury’s Listing of Approved Sureties. Under certain conditions, bonds can also be with underwriters at Lloyds of London. Neither the plan nor a party of interest with the plan may have control or significant financial interest in the bond.
This article is only for informational purposes. If you have any specific questions relating to your plan, please consult your legal counsel or tax advisor.
Citation: Doyle, Robert. “Field Assistance Bulletin No. 2008-04.” Department of Labor, 25 Nov. 2008. Department of Labor. http://www.dol.gov/ebsa/regs/fab2008-4.html