Four Things to Know About ERISA Fidelity Bonds and Fiduciary Liability Insurance

The Employee Retirement Income Security Act (ERISA) mandates that anyone handling retirement plan funds must be covered by a fidelity bond to protect the plan from potential losses due to fraudulent acts. Here are essential points to understand about ERISA fidelity bonds and fiduciary liability insurance.

1. Fidelity Bonds vs. Fiduciary Liability Insurance: A fidelity bond protects the plan against losses from fraud or theft by individuals handling plan funds, while fiduciary liability insurance covers fiduciaries themselves against breaches in their responsibilities. ERISA mandates fidelity bonds but does not require fiduciary liability insurance.
2. Who Needs to Be Bonded: Only those directly handling or accessing plan funds are required to be bonded. Fiduciaries with no access to plan funds or authority to direct funds generally do not require bonding.
3. Coverage Requirements: Fidelity bond coverage must be at least 10% of the plan’s handled funds, with a maximum of $1,000,000. Plans holding “non-qualifying assets” like real estate or collectibles above 5% of plan balances must secure a bond covering 100% of these assets or conduct an annual CPA audit.
4. Bond Payment Options: Since the fidelity bond’s beneficiary is the plan, plan assets can cover bond costs, though it may also be purchased as a business expense if preferred.

Though it might not make headlines, maintaining compliance with these requirements is crucial for plan security. Contact us to discuss how to secure an ERISA fidelity bond for your plan.