ERISA Bonds

How much does an ERISA bond cost?

The cost for an ERISA bond is a percentage of the money covered, usually around 10%.

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.

ERISA Bond Requirements

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.

ERISA Bond Regulations

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 entirely.

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 also allows the employees to make direct claims on the bond.

All of this helps to prevent foul play by ensuring those who participated in the misconduct cannot profit from it.

What is the difference between an ERISA bond and a fidelity bond?

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. So there isn’t a difference, an ERISA bond is simply a specific and unique type of fidelity bond.

The Department of Labor offers additional resources on ERISA bonds for reference.

How can I get an ERISA fidelity bond?

We offer a standard ERISA fidelity bond product. In addition, if you need a custom ERISA fidelity bond our team can have a free bond quote to you within 48 hours.

ERISA Bond Exemptions

There are specific situations where ERISA bonds are not legally required for a business with an employee benefit plan. Some of those situations include:

• Plans with no assets: If a plan has no assets, it may be exempt from the ERISA bonding requirements.
• Plans covering only the sole owner or partners in a business: Plans that only cover the sole owner or partners in a business, where there are no other employees covered, may be exempt.
• Governmental plans: Employee benefit plans established or maintained by governmental entities are generally exempt from the ERISA bonding requirements.
• Church plans: Employee benefit plans established or maintained by churches and certain related organizations are exempt from the ERISA bonding requirements.
• Plans with assets consisting solely of employer securities: Plans with assets consisting solely of employer securities are exempt from the ERISA bonding requirements.
• Plans with assets under $1,000,000: Small plans with total assets under $1,000,000 are exempt from the ERISA bonding requirements, provided that they meet certain conditions.

It's important to note that while these exemptions exist, it's always advisable to consult with a legal or financial advisor to ensure compliance with ERISA regulations specific to your situation. Even if your business is not legally required to purchase an ERISA bond, it can still protect your business and employees from serious fraud and embezzlement vulnerabilities.

If you have questions about your ERISA legal obligations, call our team today.