ERISA

Your Bond Might Not Be an ERISA Bond

12/20/2018

The ERISA Act requires that every person who handles employee benefit plan assets or funds as well as any plan fiduciary be bonded with an ERISA fidelity bond. Those bonded must be bonded for at least 10% of the amount of funds or assets they handle. Bonds can be purchased for up to $500,000, or $1,000,000 if an employee of a plan that holds employer securities.

So you handle plan assets and learn about these requirements, causing you to go purchase a bond to be in compliance with the Department of Labor. But what if the bond you purchased isn’t an actual ERISA fidelity bond? Then you won’t be in compliance with the DOL no matter what kind of bond you bought.

Whether you have an ERISA fidelity bond is a question on the Form 5500. If a plan sponsor who is required to have one acknowledges on the form that they don’t have the bond, they’ll likely be audited by the DOL. But if you don’t realize you don’t have one and still answer the question in the affirmative, it’s a problem too. Many who erroneously believe that they have ERISA fidelity bonds are mistaken because the bond they purchased covers only theft or something similar. That may cover one person or part of the plan assets depending on the bond or policy, but it is not a compliant ERISA fidelity bond.

ERISA fidelity bonds protect employee benefit plans from acts of fraud or dishonesty by the person handling the funds or assets. The bond that the fiduciary purchased in the theft case would cover the case in which the money was stolen, but it wouldn’t fully protect plan beneficiaries if acts of fraud or dishonesty by one of the “handlers” took place.

ERISA fidelity bonds have to reference plan fiduciaries and ERISA plans. Learn more about whether your bond is an ERISA bond. Another important aspect to keep in mind is that, although an ERISA bond protects the participants of your plan, this does not cover you as the fiduciary. It’s vital you also invest in fiduciary liability insurance to protect all parties involved.

Colonial Surety Company is a Treasury Listed surety company providing Department of Labor compliant ERISA fidelity bonds. Colonial is one of the leading providers of ERISA related products, offering bonds approved by the Dept. of Labor. We make it easy to obtain your bond instantly as well as allowing you to purchase retroactive bond coverage for the years the plan was not previously covered.

If you would like to learn more about purchasing an ERISA fidelity bond, or an ERISA fidelity bond package including fiduciary liability insurance and cyber liability insurance, call 888.383.3313 or email ERISADept@colonialsurety.com. You can also learn more about becoming a pension professional partner.