It's Bond...Fidelity Bond

By Yariel Chiong

Qualified Retirement Plans generally have two types of bonds that are required: (1) the Employee Retirement Income Security Act (ERISA) bond commonly known as a fidelity bond and (2) the small plan filer bond. The bonding requirements may be satisfied with one bond. Two separate bonds may have to be purchased if the surety company will not issue one bond that exceeds the $500,000 bonding limit of the ERISA bond.

ERISA requires employee benefit plans to be bonded. The amount of the bond may not be less than 10% of the amount of funds being handled and need not be greater than $500,000. However, the maximum liability increases to $1,000,000 if the plan’s assets are invested in securities of any sponsor or contributing employer. If a plan sponsor files a Form 5500-EZ you are not subject to any bond.

The small plan filer bond is required if less than 95% of the plan's assets are invested in "qualifying plan assets" and the plan sponsor does not want a written opinion from an independent qualified public accountant. The amount of this bond may not be less than the value of the plan assets which are not qualifying plan assets, without regard to the bonding limit described above.

Qualifying plan assets are any of the following types of investments: (1) qualifying employer securities, (2) participant loans, (3) assets held by a regulated financial institution, (4) registered mutual funds, (5) investments and annuity contracts issued by an insurance company, and (6) assets in participant-directed accounts.

It is important to point out that fiduciary liability insurance is not the same as an ERISA bond. An ERISA bond is required and protects the plan against fraudulent or dishonest acts on the part of fiduciaries or persons who handle plan funds. Fiduciary liability insurance is not required and does not protect the plan from fraudulent or dishonest acts. Fiduciary liability insurance does protect the fiduciaries from liability occurring by reason of other than fraudulent or dishonest acts. However, fiduciary liability insurance must permit recourse by the insurer against the fiduciaries.

It is important for fiduciaries to verify they have the proper amount of coverage. It may take a single or multiple bonds to comply with current Department of Labor (DOL) guidance. Ask your ACI administrator or consultant to review if you are ERISA compliant. The U.S. Treasury Department published an updated list of approved surety bond providers. You can access the approved list by visiting: http://www.fms.treas.gov/c570/c570_a-z.html. If your annual return indicates that you do not have a fidelity bond from a provider on the approved list, you may be contacted by the DOL requesting an explanation.

If your bond was issued by a company who does not appear on the approved list, contact your insurance agent regarding obtaining a bond from an approved company.