ERISA bond, aka ERISA fidelity bond, is a type of insurance that protects private health and retirement benefit plans against potential fraudulent or dishonest acts by the managers (aka trustees) of the plan. The bond was created as a result of the Employee Retirement Income Security Act (ERISA) in 1974, and requires that all individuals who “handle” plan assets be bonded by an insurance company approved by the Department of Treasury.
The bond coverage must be at least 10% of the pension plan asset, with a minimum limit of $10,000 per plan and maximum limit of $500,000 per plan ($1 million for plans that hold securities issued by the employer). For example, if your pension plan asset is $1m, you would need to buy a bond with a minimum coverage of $100,000. We’ve listed our pricing for ERISA bonds below. Note that ERISA bonds under $500,000 can be purchased instantly without a credit check using our self-serve checkout. All our bonds are approved by the US Department of Treasury.
Any person who “handles” the assets of a private health or retirement plan are required to be bonded. Specifically, “handling” is defined as:
Typically, an ERISA bond is required for the plan administrator and directors of the organization who handle plan funds by virtue of their duties of safekeeping and disbursement of funds.
No, ERISA bond and fiduciary liability insurance are not the same. The ERISA bond protects a plan and the employees invested in the plan from losses due to fraud or dishonesty by those handling plan funds, while fiduciary liability insurance is meant to protect the trustees from claims of mismanagement and the legal liabilities related to the role of a fiduciary. Fiduciary liability insurance cannot act as a substitute for an ERISA bond.
The ERISA bond must be acquired from a surety company that is listed on the Department of the Treasury's approved list, also known as Department Circular 570. Additionally, the plan and fiduciaries of the plan cannot have any direct or indirect control or significant financial interest in the surety company or broker that obtains the bond.
There are two parties involved in an ERISA bond, the plan and the surety company. The surety company acts as an insurer to the plan, which is what is being insured. In the case where there is a loss of assets due to fraudulent behavior, the plan can make a claim on a bond that will then be paid out by the surety company. This can be a bit confusing because the source of fraudulent behavior (the trustee) is seemingly the same as insured (the plan). The distinction is that the insured plan is a financial entity and the trustee is an individual that is legally distinct from the plan.
Yes, there are two situations in which an employee benefit plan is exempt from ERISA requirements.
Completely unfunded plans: A common rule of thumb for this is that if a plan has employee contribution, then it cannot be “unfunded”. A plan is considered to be unfunded if the plan only pays benefits from the general assets of the employer. To be considered “general asset”, the funds paid out must not:
Plans that are exempt from ERISA: The following plans are exempt from ERISA as they are not included in ERISA Title I:
Department of Labor Specified Exemptions: ERISA and the Department of Labor provide exemptions for some regulated financial institutions, such as certain banks, insurance companies, registered brokers and dealers. Exempted organizations do not require an ERISA bond.
Yes, a single bond can cover a trustee that handles multiple plans. However, this is rare, and the bond amount must be at least 10% of the asset value of all the plans managed by the trustee, up to the maximum amount for each plan. For example, if an individual manages two plans that are each $6 million, then the individual would have to acquire an ERISA bond of $1 million, since each plan reaches the individual bonding limit of $500,000.
Yes, it’s possible for the plan to pay for the bond out of the plan’s assets. Purchasing an ERISA bond is meant for purposes of protecting the plan and does not relieve the person from their obligation of protecting the plan, so therefore it is allowed.
Yes, the bond can be bought for an amount greater than the 10% minimum requirement. This is a decision up to your organization. This is similar to buying insurance where a higher amount provides a higher payout in the event of financial loss due to fraudulent activities.
The responsibility of ensuring that a plan is compliant with ERISA bonding requirements may not be limited to a single individual. All individuals who handle funds for the plan are responsible for ensuring that a plan is compliant with bonding requirements. Furthermore, any individual who has authority over another individual that “handles” the plan can also be held accountable if a plan is non-compliant. For example, if person A hires person B as a trustee for their company’s retirement plan, then both person A and B are responsible for ensuring that the plan has an ERISA bond with the correct bond amount.
