ERISA Bonds

An ERISA bond, also known as a fidelity bond, is a specific type of insurance required under the Employee Retirement Income Security Act of 1974 (ERISA) for certain employee benefit plans in the United States. It serves as a safety net, protecting the plan and its participants from financial losses caused by acts of fraud or dishonesty committed by individuals handling plan funds or property.

Who needs an ERISA bond?

An ERISA bond is mandatory for most private-sector employee benefit plans that hold more than $5,000 in assets. This typically includes:

• Pension plans
• 401(k) plans
• Health insurance plans
• Employee stock ownership plans (ESOPs)
• Certain types of plans, such as unfunded plans or government-sponsored plans, are exempt from the bonding requirement.

What does an ERISA bond cover?

The bond covers losses resulting from fraudulent activities such as:

• Larceny
• Theft
• Embezzlement
• Forgery
• Misappropriation of funds
• Wrongful abstraction
• Wrongful conversion
• Willful misapplication

Key points about ERISA bonds:

• Bond amount: The minimum bond amount is 10% of the plan's total assets, with a minimum of $1,000 and a maximum of $500,000 per individual covered.
• Coverage: The bond protects the plan assets, not individual participants directly. If a participant suffers losses due to fraud, they would typically need to claim them through the plan itself.
• Cost: Premiums for ERISA bonds are based on the bond amount, plan size, and risk factors.
• Duration: Bonds are typically issued for a period of one year and require renewal annually.

Benefits of having an ERISA bond:

• Protects plan assets: Provides financial security for the plan and its participants in case of fraud.
• Complies with ERISA regulations: Ensures the plan meets its legal obligations.
• Demonstrates responsible plan management: Shows participants that the plan takes their financial security seriously.

Remember: It's crucial to choose a reputable surety company with a strong financial standing to ensure claim fulfillment if needed. Consulting with an insurance professional or legal advisor can help you determine the specific bond requirements for your plan and choose the most suitable coverage.