According to the Employee Retirement Income Security Act of 1974, it is mandatory for those who handle plan funds to be bonded. In case of any loss resulting from fraud or dishonesty, the plan can request financial compensation by filing a claim on the bond.

ERISA bonds are bought through surety companies or insurance brokers listed on the Department of Treasury’s list in Department Circular 570. The plan can pay for the bond out of its assets.

What is an ERISA bond?

An ERISA bond is an insurance fidelity bond that meets the requirements of the Employee Retirement Income Security Act (ERISA) of the United States. The act protects plan participants and beneficiaries from financial losses due to the dishonesty or incompetence of plan administrators.

To purchase an ERISA bond, you must fill out an application that includes your legal name, past loss history if applicable, contact information, number of trustees, and more. A reputable provider will review your application and perform a credit check before providing a quote.

The ERISA bonds also protect from misappropriation, forgery, wrongful abstraction, and willful misapplication of funds. ERISA requires that any person who handles the assets of an ERISA-covered employee benefit plan be bonded unless exempt from doing so by one of ERISA’s exemptions.

What is a fidelity bond?

ERISA requires all fiduciaries that handle pension and employee benefit funds to be bonded in an amount equal to 10% of the assets being handled. Certain institutions are exempt from the bond requirement, such as banks and trust companies that are FDIC-insured, subject to state-law fidelity bond requirements, and registered broker-dealers in securities covered by a self-regulatory organization’s fidelity bond requirements.

The bond covers losses from theft or misappropriation of funds the fiduciary manages. It is not a replacement for fiduciary liability insurance, which covers the legal costs associated with unintentional fiduciary breaches and offers protection of personal assets. Many fiduciaries purchase a fidelity bond and a fiduciary liability policy for comprehensive protection.

What is a fiduciary liability bond?

An ERISA (Employee Retirement Income Security Act) fidelity bond protects the assets of your company’s employee benefit plan (like your 401(k)) from losses caused by dishonesty or fraud. Anyone who handles assets within the plan, including trustees and fiduciaries, must be bonded by law. The bond is a three-party agreement between the plan, the surety company, and the covered person.

The Department of Labor sets these rules and requires that anyone who “handles funds or other property” for an employee benefit plan be bonded. People who handle the smallest amount of money in the plan are exempt from this rule. It is also possible to purchase a fiduciary liability insurance policy, which is not required under ERISA and provides much broader coverage for your business. However, deciding whether or not to purchase this type of policy is a fiduciary act that falls under ERISA’s fiduciary duty rules.

How do I get an ERISA bond?

Under ERISA, anyone who handles cash, checks, or similar property belonging to an employee retirement savings plan must obtain an ERISA bond. The bond protects the plan against any dishonesty or fraud committed by those handling the funds.

ERISA bonds are typically sold through insurance carriers or surety bond brokers listed on the Department of Treasury’s List of Approved Sureties. To secure an ERISA bond, you must apply and provide information about your plans, previous loss history (if applicable), and other documentation. You can compare quotes and prices for ERISA bonds from multiple providers online to find the best options for your specific needs.

The cost of an ERISA bond is usually a small percentage of the bond amount. Other factors influencing price include your business class, the number of ERISA bond principals you want to cover, and other details. Upon purchasing an ERISA bond, you’ll receive proof of coverage from your provider that must be submitted to the Department of Labor if a claim is made against you.