When you sponsor a retirement plan at your business, you are specifically required by the Employee Retirement Income Security Act (ERISA) to obtain a fidelity bond. The purpose of an ERISA fidelity bond is to protect an employer sponsored retirement plan from losses due to dishonesty or fraud. Remember: an ERISA bond protects the plan—-not the plan sponsor, so fiduciary liability insurance is also crucial. Read on to understand why.
Understanding ERISA Bond Basics
The words “fiduciary breach,” conjure something big going wrong with a large company-sponsored retirement plan, perhaps even resulting in headline-making allegations. In reality, a painful, and very common plan sponsor error, failure to have an active ERISA fidelity bond as required by The Department of Labor, is much more likely to wreak havoc for average business owners, as accountants at Adams Brown explain:
Plan sponsors must bear in mind that failure to carry a fidelity bond can expose a plan to enforcement action by DOL – most commonly a plan audit, but personal liability and lawsuits are also possible…..The amount of bond coverage must be reported on the plan’s annual Form 5500 filing with the U.S. Department of Labor, so deficiencies will likely raise red flags….
While the prospect of malfeasance in the management of a workplace retirement plan is something no one wants to think about, it’s important for plan sponsors and participants alike to know the federal law requires that plan assets be protected from such a scenario. A provision under the Employee Retirement Income Security Act (ERISA) requires that plan sponsors obtain a fidelity bond to protect plan assets against losses caused by acts of fraud or dishonesty. Such acts may include theft, embezzlement, forgery, misappropriation and other acts.
With few exceptions, ERISA requires retirement plan sponsors to have a fidelity bond that covers at least 10% of plan assets, with maximum coverage of $500,000 for most plans and $1 million for employee-owned companies (ESOPs). As a Treasury-listed –and leading–national provider of ERISA bonds, Colonial Surety Company helps retirement plan sponsors quickly and easily obtain their required ERISA bonds, and uniquely offers these additional services to ensure ongoing compliance and protection:
- Retroactive coverage for gaps in your ERISA bond compliance
- Multi-year options to ensure continuous coverage at locked in rates
Obtain or renew your ERISA bond in minutes now. If you have had an ERISA Bond and need to update it, just log in and make your choices. If you are new to Colonial Surety, obtain your quote, enter payment and download your proof of coverage–instantly.
ERISA Bond and Fiduciary Liability Insurance: What’s The Difference?
According to Adams Brown, another frequent area of confusion for retirement plan sponsors relates to what an ERISA fidelity bond protects, vs who fiduciary liability protects. Essentially, a fidelity bond protects the plan, while fiduciary liability insurance protects the sponsor. Though only the fidelity bond is required by law, it’s critically important for plan sponsors to also have fiduciary liability insurance—here’s why:
A fidelity bond protects against loss from fraud or dishonesty by an individual or individuals involved in managing the plan. Fiduciary liability coverage protects against loss that stems from the way the plan is run. For example, fiduciary liability coverage may cover losses in the event that employees file a lawsuit against the plan for charging exceedingly high expenses.
High plan fees and poor investment options have been the fiduciary breach allegations at the heart of a swirl of lawsuits that are proving costly and disruptive for retirement plan sponsors. Even failure to comply with the ERISA bond requirement can prove to be a risky fiduciary breach, as the Department of Labor specifically reminds us: “Failure to have a bond is a fiduciary breach, resulting in plan fiduciaries being personally liable for any losses due to fraud or dishonest practices that would have been covered by the fidelity bond.” Bottom line, though the ERISA Fidelity Bond is required, it does not protect the plan sponsor.
That’s why it is essential for retirement plan sponsors to understand and act on these pointers:
1) If you sponsor a retirement plan at your company, you are automatically a fiduciary under the high standards ERISA, which is enforced by the U.S. Department of Labor.
2)Being a fiduciary means you are personally responsible for ensuring that the plan consistently benefits participants.
3)Failures, including errors and oversights, can result in fines and penalties, as well as lawsuits–all of which put your personal assets at risk.
4)You can never fully eliminate the risk of being held personally accountable to the plan, participants and beneficiaries.
5)Outsourcing plan services does not free you from your risks: as a sponsor, you choose the service providers and remain ultimately accountable for their success on behalf of plan participants and beneficiaries.
6)Specific examples of what you can be held personally accountable for as a fiduciary include:
- Decisions: Do you have the right advisor, and investment options?
- Cost control: Are the plan fees reasonable and services solid?
- Compliance: Do operations adhere to the plan document, and government regulations?
7)As a fiduciary, you can also be held accountable for failing to adequately mitigate cybersecurity threats to the plan, or to curtail the damage from a breach. You can also even be held responsible for failure to monitor your chosen service providers for their adherence to cybersecurity protocols.
8)If you face claims that you have failed in your responsibilities as a retirement plan sponsor, the only type of protection that shields you personally is Fiduciary Liability Insurance—-with it, you’ll be armed with coverage for defense and penalties. Without Fiduciary Liability Insurance, your personal assets are exposed.
Help For Retirement Plan Sponsors
Colonial Surety Company offers an efficient and affordable Fiduciary+Cyber Liability Insurance bundle specifically to protect retirement plan sponsors. For efficiency, you can even add the coverage on to your ERISA Bond. For a few dollars a day, you’ll be armed with:
- $1,000,000 for Defense and Penalties if you are faced with alleged or actual breaches of fiduciary duty.
- Cybersecurity Coverage for the business and plan, which addresses Department of Labor recommendations, and includes expert response services to curtail damage after an incident.
Get protected now: Fiduciary+Cyber Liability Insurance
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