Protect Your Plan with a 
Fidelity Bond 

What is a Fidelity Bond?

Fidelity bonds are a way to ensure protection for policyholders from fraudulent or dishonest actions by a plan trustees, or company employees who handle plan assets. With the creation of a retirement plan, fidelity bonds are required for plan officials who oversee the plan’s assets.

Fidelity bonds differ from regular bonds several ways. Unlike traditional bonds, fidelity bonds do not accumulate interest and are not tradable. Simply put, they are insurance to prevent loss from fraudulent acts. Examples include fraudulent trading, theft and forgery. Fidelity bonds can cover not only loss of monies but stolen or damaged property.  

The ERISA Factor

The Employee Retirement Income Security Act of 1974 ("ERISA")  is a federal law that established standards and guidelines for retirement plans. Under ERISA Section 412, those that “handle” a plan’s assets must be bonded. Employee Benefits Security Administration (EBSA) explains the criteria for determining a handler of a plan:

• Physical contact with cash, checks or similar property;
• Power to transfer funds from the plan to oneself or to a third party;
• Power to negotiate plan property (e.g., mortgages, title to land and buildings or securities);
• Disbursement authority or authority to direct disbursement;
• Authority to sign checks or other negotiable instruments; or
• Supervisory or decision-making responsibility over activities that require bonding.

What is an ERISA Fidelity Bond?

An ERISA fidelity bond is required to protect the plan’s participants from acts of fraud and dishonesty by those individuals overseeing the plan. In general, the bond amount must be for 10 percent of the plan’s assets. The bond cannot be for less than $1,000, regardless of the value of the Plan’s assets. The maximum amount of bonding required, regardless of the Plan’s assets is typically $500,000. However, when a plan holds employer securities, the maximum amount required is increased to $1 million. Here are some other important things to know about ERISA Fidelity Bonds:

• ERISA fidelity bonds can cover multiple plans. For this to occur, the bond must cover the minimum required for each plan combined.
• Not having proper bonding is a breach in fiduciary responsibilities and may be penalized as such. Fiduciary breaches often carry heavy penalties.
• A retirement plan can purchase an ERISA fidelity bond. Using plan assets to purchase a bond does not violate ERISA’s fiduciary provisions.

Differences Between ERISA and Fiduciary Liability Insurance

Commonly ERISA bonds are confused with fiduciary liability insurance. There are several differences between the two. Unlike ERISA bonds, fiduciary liability insurance is not required by ERISA. Furthermore, fiduciary liability insurance covers legal liability and expenses. Unintentional errors, omissions and neglect of fiduciary responsibilities are covered. Fiduciary liability insurance covers the trustees of the plan whereas ERISA fidelity bond insures the people who “handle” the plan’s assets, including the trustees.

In addition to being required by law, it is in your best interest to obtain an ERISA fidelity bond to protect your plan from fraudulent actions. Each fiduciary is jointly and severally liable; meaning that each fiduciary is liable for their own, as well as, the actions of all the other fiduciaries.

You can get a fidelity bond from your insurance agent, or you can obtain one from our partner, Surety Solutions.

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Information provided by Benetrends Inc. is not intended to be used as legal or accounting advice, or as the sole basis for investment decisions, nor should it be construed as advice designed to meet the particular needs of an individual investor. Please seek the advice of legal or tax professionals, as appropriate, regarding the evaluation of any specific information, opinion, advice or other content.
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