Understanding ERISA Fidelity Bond Coverage

Posted August 6, 2024

Employee Retirement Income Security Act (ERISA) is a federal law that sets minimum standards for most voluntarily established retirement and health plans in private industry, providing protection for individuals in these plans. One of the critical protections under ERISA is the requirement for fidelity bond coverage.

An ERISA fidelity bond is a type of insurance that protects the retirement plan against losses caused by acts of fraud or dishonesty. These acts can include theft, embezzlement, forgery, misappropriation, wrongful abstraction and wrongful conversion by individuals who handle plan funds or property.

ERISA fidelity bond coverage is important for the following reasons:

Protection Against Fraud. The primary purpose of the fidelity bond is to safeguard the plan against loss due to fraudulent activities. This protection is crucial as it helps ensure the assets in retirement plans are secure.

Compliance with Federal Law. Under ERISA, every person who handles plan funds must be bonded. Failure to have the appropriate bond in place can result in penalties and could expose plan fiduciaries to personal liability.

Peace of Mind for Plan Participants. Knowing that a fidelity bond is in place helps provide reassurance to plan participants that their retirement savings are protected from potential acts of dishonesty.

ERISA requires that every fiduciary of an employee benefit plan and every person who handles funds or other property of such a plan must be bonded. This includes plan administrators, trustees, officers and employees of the plan, and service providers.

The amount of the bond must be at least 10% of the amount of funds the person handles, subject to a minimum of $1,000 and a maximum of $500,000 per plan. For plans that hold employer securities, the maximum required bond amount increases to $1,000,000.

While most plans must adhere to the bonding requirements, there are a few exceptions. For example, certain unfunded plans or plans that are wholly owned by one person are not required to be bonded. However, it’s essential to consult with a legal advisor to understand if your plan qualifies for an exception.

ERISA fidelity bond coverage is a fundamental requirement that provides critical protection for retirement plans. By helping ensure compliance with ERISA’s bonding requirements, plan fiduciaries can safeguard against potential financial losses due to fraudulent activities, thereby securing the interests of plan participants and maintaining the integrity of the retirement plan.

Jeremy Callegan

Jeremy initiated his career in the retirement plan industry in 2007, excelling in executing and managing corporate sponsored retirement plans at a local third-party administration firm. His expertise encompassed compliance factors such as plan design, non-discrimination testing, and annual Form 5500 preparation. Leveraging this experience, he strategically designed plans to minimize tax burdens and turnover, benefiting business owners, key personnel, and their workforce. In December 2014, he assumed the role of relationship manager at a prominent national record-keeper, overseeing 401(k) operations in Louisiana and Mississippi. Jeremy cultivated and sustained connections with 350+ financial advisors, managing 675 retirement plans and 20,000+ participants. Motivated to enhance proactive service in the retirement plan sector, Jeremy joined CoSource Financial Group in February 2017. Specializing in implementing or acquiring corporate-sponsored retirement plans, he prioritizes efficient plans for employers and effective solutions for participants. According to him, a well-structured retirement plan not only attracts and retains employees but also ensures a timely and respectable retirement through sound advice.