An ERISA bond is a specific type of fidelity bond used to protect people participating in employee benefit plans such as a defined benefit plan, a pension fund, or a 401(k) plan. Federal Law, the Employee Retirement Income Security Act (ERISA), requires the bond. Created by the Employee Retirement Income Security Act of 1974, ERISA created rules and a regulatory framework to support and govern employer-sponsored retirement plans and their administration. The goal was to protect employees who enrolled in these plans.
The cost for an ERISA bond is a percentage of the money covered, usually around 1%.
Every person who handles funds or other property of an employee benefit plan is required to be bonded unless covered under an exemption. ERISA makes it illegal for any person to receive, handle, disburse, or otherwise exercise custody or control of plan funds or property without being properly bonded. These people include the plan administrator, officers and employees of the plan, and trustees.
Generally, each person must be bonded in an amount equal to at least 10% of the amount of funds they handled in the preceding year. The bond amount cannot, however, be less than $1,000 or more than $500,000, or $1,000,000 for plans that hold employer securities. These amounts apply to each plan named on a bond.
For example, assume your company’s plan has funds totaling $1,000,000. The plan trustee, named fiduciary, and administrator are three different company employees who each have access to the full $1 million, and each has the power to transfer plan funds, approve distributions, and sign checks. Under ERISA, each person must be bonded for at least 10% of the $1 million or $100,000.
Laws governing ERISA bonds are very specific, so an ERISA bond cannot include any deductible in the insurance contract, or any feature that charges the holder upfront, because all losses caused by fraud or dishonesty must be covered from the very first penny.
In addition, it is important to make sure that the plan is named as an insured party on the bond so that the plan can recover losses covered by the bond. This means that if any party stands to gain from the plan, it's the people who pay into it in the first place. This helps prevent foul play by taking away any chance that people who manage the plan can stuff their own pockets. It also helps ensure that the plan (and its participants and their beneficiaries) can make a direct claim on the bond.
To get an ERISA bond, contact us and one of our bonding specialists will be happy to walk you through the process.
An ERISA bond is a type of fidelity bond. There are several types of fidelity bonds—all of which protect the policyholder from losses due to fraudulent or dishonest acts. You can learn more about fidelity bonds on this page.