The Employee Retirement Income Security Act of 1974 (ERISA) generally requires that people who handle funds or property of a qualified retirement plan, such as a 401(k), be bonded. So if your organization sponsors a qualified plan, it’s important to stay up to speed on your bonding requirements.
These bonds are sometimes referred to as “ERISA bonds,” “fidelity bonds” or “surety bonds.” The bond reimburses the plan in the event that plan assets are lost because of fraud or another form of dishonesty. This includes acts such as theft, larceny, forgery, embezzlement, misappropriation or willful misapplication of plan assets.
Parties that need to be bonded include (but aren’t limited to) plan trustees and administrators, as well as members of the plan’s investment committee. Generally, each individual who handles funds must be bonded for at least 10% of the amount of plan funds he or she handled the previous year but never for less than $1,000 and generally not for 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.
Getting your bond
You must buy the bond from a company approved by the U.S. Treasury Department. The agency’s Department Circular 570 lists these approved surety companies. (For more information, click here.)
Finally, beware that fiduciary liability insurance isn’t the same thing as an ERISA bond. An ERISA 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.
Please contact our firm to discuss your organization’s specific ERISA bonding requirements, as well as any other aspect of a qualified retirement plan you have questions about.