Why Does Your Plan Need an ERISA Fidelity Bond?


Plans can very easily come under threat. Whether it’s from larceny, forgery, embezzlement, or misappropriation, theft, and fraud are unfortunate facts of plan administration. So how do you protect your plan against those threats of theft and fraud? With a Department of Labor required ERISA fidelity bond, of course.

The bond is critical in covering the plan against losses resulting from theft or fraud. The plan is typically the named insured on the bond, with a surety as the party providing the bond. The plan is able to make a claim on the bond as the insured party if a plan official causes a covered loss to the plan due to fraud or dishonesty.

Some of the more common circumstances resulting in claims ERISA bonds protect against include abuses of check writing authority, misappropriation of plan funds by payroll personnel, defalcations by service providers tasked with handling plan funds, and improper discretionary uses of funds by service providers. However, risks of these claims can be mitigated by implementing procedural safeguards with a bonding company striving to provide ERISA compliant fidelity bonds and proactive responses to adverse events. The bond provides a way to protect against those losses should they come to fruition and help provide a peace of mind to plan beneficiaries, allowing them to know their benefits are protected.

To legally sell an ERISA fidelity bond, the surety or reinsurer must be Treasury Listed. The plan must also not have any control or significant financial interest in the surety or reinsurer to obtain a bond from that surety or reinsurer. Each person who is required to be bonded must be bonded in an amount equal to at least 10% of the amount of funds handled in the previous year with the bond amount not falling below $1,000. A fidelity bond can, however, be purchased for more than the legally required minimum, though this is uncommon.

Fiduciary liability insurance, however, differs from the standard ERISA fidelity bond. Fiduciaries often confuse ERISA fidelity bond coverage with personal insurance, but to insure fiduciaries personally, separate fiduciary liability insurance is required. This protects fiduciaries, and sometimes the plan itself, against losses due to breach of fiduciary responsibility. Fiduciary liability insurance alone does not satisfy the Department of Labor’s ERISA bonding requirements, however.

Colonial Surety Company is a Treasury Listed surety company providing Department of Labor compliant ERISA fidelity bonds. 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 Learn more about becoming a Pension Professional Partner.