Yes! These two different forms of protection exist for different reasons. Experts explain the purpose of each and the important roles these protections play in employer sponsored retirement plans. Understand the coverages you need as a plan sponsor—and how to best obtain them.
Protecting The Plan from Acts of Fraud and Dishonesty
ERISA fidelity bonds are required by the Department of Labor for everyone involved in handling funds or property of the retirement plan (in any way). The purpose of ERISA fidelity bonds is to protect the retirement plan against acts of fraud or dishonesty. The experts at Eisner Amper offer this summation:
Section 412 of the Employee Retirement Income Security Act of 1974 (“ERISA”) requires every person who handles funds or other property of a plan to be bonded (excluding certain exempted individuals). Such persons include plan fiduciaries but may also include any director, officer or employee of the fiduciary. This is referred to as ERISA’s bonding requirement. The ERISA fidelity bond, also known as an employee dishonesty bond, is a legal requirement arising from ERISA to protect plans against losses resulting from an act of fraud or dishonesty by persons handling a plan’s assets.
Experts remind plan sponsors to “frequently assess the bonding coverage to comply with requirements and to prevent any associated risks.” Learn more via the Department of Labor’s handout, “Protect Your Employee Benefit Plan With and ERISA Fidelity Bond,” which is available here. Note too: the Department of Labor requires ERISA Fidelity Bonds be obtained from the Department of the Treasury’s Listing of Approved Sureties (Department Circular 570). Failure to have an ERISA bond that continuously and adequately covers the plan poses significant risks for plan sponsors and other fiduciaries. For example:
- Failing to report a sufficient bond on the Form 5500 can trigger a plan audit.
- It is considered as an unlawful act under ERISA if any person “receives, handles, disburses or otherwise exercises custody or control of plan funds or property” without being properly bonded.
- Plan fiduciaries can be held personally liable for losses that could have been covered by a fidelity bond.
As a leading national ERISA bond provider, listed with the Department of the Treasury, Colonial helps plan sponsors ensure compliance. Uniquely, Colonial includes retroactive ERISA fidelity bond coverage for years when the plan was not adequately covered. Additionally, plan sponsors can opt for comprehensive, multi-year coverage packages, ensuring the ERISA bond remains Department of Labor compliant for the life of its term. Obtain ERISA Fidelity Bond Here Now.
Protection from Unintentional Acts
Though not required by the Department of Labor, fiduciary liability insurance provides critical protection for plan sponsors in the event of a breach of their fiduciary obligations under the high standards of ERISA law. Eisner Amper emphasizes that while ERISA fidelity bonds provide protection from acts of fraud and dishonesty, they do not provide protection for unintended acts—as fiduciary liability insurance does:
For instance, an employee acting in good faith may make a mistake in administering the plan according to plan documents or fail to monitor third-party service providers, which may result in penalties or losses arising to the plan. Because these acts were taken in good faith and are not acts of dishonesty or fraud, they are not covered under an ERISA bond….ERISA does not require fiduciary liability insurance, however, it should be considered as protection against fiduciary breaches. Fiduciary liability insurance is designed to provide defense costs and applicable damages for actual or alleged breaches of fiduciary duty. Unlike the fidelity bond, fiduciary liability insurance offers plan fiduciaries protection of personal assets.
Without coverage, even a mere allegation of a fiduciary breach against the high standards of ERISA law can be ruinous for plan sponsors. Consider, for example, that defense costs alone are about $600 per hour. These days, even a relatively minor cybersecurity incident can rapidly spiral into a fiduciary disaster too. That’s why Colonial Surety offers an affordable Fiduciary-Cyber Liability Pack for plan sponsors.
Armed with this protection, you’ll have:
- Legal defense and coverage for penalties against claims of alleged or actual breaches of fiduciary duties—up to $1,000,000.
- Defense against lawsuits and regulatory actions related to a cyber breach.
- Expert-led response, notification and crisis management services to prevent a cyber incident from spiraling into a disaster.
Colonial makes it so fast and reasonable for plan sponsors to secure all this protection, that you can obtain yours in minutes now: Fiduciary-Cyber Liability Pack
With diligence as a plan sponsor, you can mitigate fiduciary liability risks—but never fully eliminate them. Under ERISA law, any individual involved in the management of a retirement plan can be held personally liable. Let Colonial Surety help you manage the inherent risks with our affordable three point protection plan: the DOL required ERISA bond to protect the assets of the retirement plan from theft; Fiduciary Liability Insurance to protect you and your assets from personal liability; and, Cyber Liability Insurance to safeguard your company and plan from covered losses and expenses in the event of a cyber breach. With Colonial, you can easily and quickly select and secure your affordable coverage package right now:
Pension plan professional? We’re here to help you with your plan sponsor clients—and we’ve got you too. From Errors and Omissions Insurance to Fiduciary Liability Insurance, Employment Practices Liabiity Insurance–and more, we’re HERE with the coverages pension professionals need to keep the business going—and growing. Insurance for Pension Professionals Right Here.
Colonial Surety was founded in 1930 and continues giving customers the assurance that they, their businesses, and their clients are safeguarded with the right surety and insurance products at all times. We are a direct and digital insurer offering products through an online platform supported with exemplary customer service. We give customers a simple, direct, and instant service that takes the pain out of buying insurance and bonds. Colonial Surety is licensed in every state in the U.S., rated “A” Excellent by A.M. Best, and listed by the U.S. Treasury as an approved surety.