ERISA Bond

While they may seem straightforward, ERISA's bonding rules are perhaps the most misunderstood and misapplied of all of ERISA's fiduciary requirements.

In 1974, the Employee Retirement Income Security Act (ERISA) was enacted to regulate most types of employee benefit plans. This Act requires that a fidelity bond be in place to cover the fiduciary (those responsible for managing the plan) and those persons who handle funds or other property of such a plan. These bonds are intended to protect the plans from dishonesty and fraud committed by individuals who are associated with them.

Who needs to be covered under an ERISA bond?

ERISA requires the bond to provide coverage for every person who "handles" plan funds within the meaning of detailed DOL regulations. Plan sponsors typically obtain a bond to cover a plan's fiduciaries and other employees handling plan assets.

What coverage amount is required?

According to the Act, the amount of coverage necessary for each plan is equal to no less than 10 percent of the amount of plan funds handled, subject to a $500,000 maximum bond amount. However, higher limits can be purchased. The $500,000 limit applies on a per plan basis. Often a plan sponsor will secure one bond that is intended to cover several or all of the sponsor's ERISA-covered plans. ERISA permits the use of bonds covering multiple plans but requires that any recovery to one plan must not decrease the amount of required coverage available to another plan covered under the same bond.

What is the purpose of an ERISA bond?

The ERISA bond is required to protect the participants and beneficiaries from dishonest acts of a fiduciary who handles the plan assets. ERISA requires every plan to bond any fiduciary and all other persons who handle plan assets.

How is an ERISA bond different than an insurance policy?

Unlike an insurance policy, the bond does not step in and pay losses for you. The bond guarantees that you will be able to pay any losses up to the face amount of the bond. The bond will only pay in your stead in the event that you are financially unable to meet your obligations.

Plans

Here are examples of the types of plans that are subject to ERISA and require a fiduciary to be bonded per Section 412 of ERISA:

• Defined Benefit Pension Plans, Money Purchase Pension Plans, Profit Sharing Plans, 401 (K) plans, stock bonus plans, employee stock ownership plans (ESOPs) and Keogh or H.R. 10 plans that have employee participants.
• Employer-sponsored welfare plan trust funds exempt from federal income tax under Internal Revenue Code Section 501(c) (9) (VEBAs).
• Employer-sponsored Simplified Employee Pension (SEP) plans and group IRA's that are sponsored by an employer or employee association.
• Simple IRA plans
• Union-sponsored plans of the types listed above.
• Plans established under IRS Code Section 457 that provide deferred compensation arrangements for employees of certain non-government tax exempt organizations.
• Employer-sponsored deferred compensation plans not qualified for federal income tax exemption, including "secular" trust, Section 402 (b) trusts, and funded excess benefit plans.
• Plans established under IRS Code 403 (b) that are employee benefit plans under ERISA either because the employer contributes to the program or because the employer has more than limited involvement in administration of the program.

How do I apply for an ERISA Bond?

Surety Pros is the easiest and most affordable method to securing your bond. Let us show you how our streamlined process will reduce the cost and help you avoid the confusion. Click here to start the process: Apply Now

Useful ERISA Resources

Click on the following links for ERISA-related websites and associations: