Bond . . . ERISA bond
POSTED BY: Administrator Administrator AT Tuesday, November 30 at 12:00 AMERISA requires that all fiduciaries of qualified retirement plans be bonded. These bonds are sometimes referred to as ERISA bonds, fidelity bonds, surety bonds or fiduciary bonds. The bond reimburses the plan in the event that plan assets are lost because of fraud or dishonesty, which includes acts such as theft, larceny, forgery, embezzlement, misappropriation or willful misapplication of plan assets.
Who needs a bond
ERISA requires anyone who handles plan funds or property or is responsible for the assets of a qualified plan to be bonded.
Where an individual or an individual and spouse wholly own a business, and there are no other participants other than the individual and spouse, ERISA doesn't require a bond in a partnership. ERISA doesn't require a bond if there are no employee participants other than the partners and their spouses.
Required amount
Effective for all plan years beginning on or after Jan. 1, 2008, each individual that handles funds must be bonded for at least 10% of the amount of the plan funds but never for less than $1,000 or more than $500,000 with respect to a single plan.
If the plan holds employer stock or other employer securities, the maximum required bond amount goes up to $1 million. However, if employer securities are simply held within a mutual fund, insurance company separate account or similar broadly diversified fund, the maximum bond amount remains at $500,000.
Other bond issues
To satisfy ERISA's requirements, the bond has to name your plan. If your company has more than one retirement plan, however, you can name them all under the same bond. But you must have the correct amount of insurance per plan as each would if it had separate bonds. (If you obtain separate bonds, you don't have to get them from the same surety company.)
In addition, an ERISA bond doesn't have to state a specific dollar amount - it can state that an individual is covered under the bond for the greater of $1,000 or 10% of funds handled up to $500,000. The amount of the bond is fixed based on the estimated assets at the beginning of the year, so the bond's amount is based on the highest amount of funds handled by a person in the preceding plan year. If there isn't a preceding plan year to determine the amount, you'll estimate the amount. Bear in mind that an ERISA bond doesn't have a deductible.
Finally, beware that fiduciary liability insurance isn't the same thing as an ERISA fidelity bond. An ERISA fidelity bond is required, but fiduciary liability insurance isn't. Fiduciary liability insurance covers claims and losses arising out of breaches of fiduciary duty. (Fiduciaries are personally liable for losses due to breaches.) Employers - or the fiduciary - can purchase this insurance.
Get your bond
You must buy the bond from a company approved by the U.S. Treasury Department. Department Circular 570, available at http://www.fms.treas.gov/c570/c570.html, lists these approved surety companies.
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