Employee Retirement Income Security Act (ERISA)
The Employee Retirement Income Security Act is a fidelity bond created in 1974 with the purpose of protecting against risk of loss due to fraud or dishonesty on the part of the trustee(s) handling funds for the employee benefits plan. Loss or acts of fraud include (but are not limited to), larceny, theft, embezzlement, forgery, misappropriation and willful misapplication.
ERISA Bonds: Features
Competitive Rates
Blanket coverage (eliminates the need for individual bonds for each trustee
3-year option with inflation guard
Surety carriers must be approved by the U.S. Treasury Department (T-List)
Limits starting at $5,000 with a maximum of $500,000
Bond amounts are 10% of the qualified assets in the plan
ERISA Bonds: Requirements
Surety carriers must be approved by the U.S. Treasury Department (T-List)
Bond amounts are 10% of the qualified assets in the plan
Individuals who handle funds/property are required to be bonded unless exempt
Who Needs an ERISA Bond?
ERISA bonds were created to address the public's concern regarding private pension and other employee benefit programs being abused or mismanaged. These bonds require that those who handle funds or other property must be covered to protect against loss or dishonesty. CPA firms, financial planners, tax preppers, are all examples of individuals who may need an ERISA bond.
ERISA bond holders...
Have physical contact with cash, checks or similar property
Hold the power to transfer funds from the plan
Have the authority to negotiate plan property such as mortgages or securities
Can disburse or direct disburse
Can sign checks or other negotiable instruments
Carry decision-making responsibility regarding bonds
ERISA Bonds vs. Fiduciary Liability
ERISA bonds cover against losses due to fraud or dishonesty committed by those who handle plan funds or property.
Fiduciary liability insures fiduciaries (sometimes the plan) against losses caused by breaches or fiduciary responsibilities.
ERISA Bonds: Common Questions
Can the plan purchase a bond and pay for the bond out of plan assets?
Yes! Plans can pay for bonds using the plan’s assets. ERISA’s bonding requirements and overall goal is to protect the plan.
Can a plan purchase a bond for a higher amount?
Yes! In appropriate cases, the plan can purchase a higher bond amount. These decisions are made by the fiduciary.
Who is responsible for proper coverage?
All individuals handling funds or property and those with the authority to appoint said individuals are responsible.