ERISA generally requires that persons handling retirement plan funds be bonded to protect the plan from loss due to fraud or dishonesty.  Because this is one of the most common areas of noncompliance, it is a good idea to give your fidelity bonds a checkup every few years.  A good place to start is by asking the following questions:

  • Is a fidelity bond required for this plan?  Although fidelity bonds are mandated for nearly every ERISA retirement plan, there are a few narrow exceptions.  In particular, no fidelity bond is required for "unfunded" plans (those that pay benefits only from the general assets of a union or employer).  Another exception is a fiduciary that is a bank or insurance company and which, among other criteria, complies with its own regulatory bonding requirements.
  • Does our fidelity bond provide enough coverage?  Each plan official must be bonded in an amount equal to the lesser of (i) 10% of the amount of funds in the plan (subject to a $1,000 minimum) and (ii) $500,000. This $500,000 limit is increased to $1,000,000 for plans that hold employer securities.  Of course, bonds can be higher than these minimum amounts.
  • Does the fidelity bond protect the correct entity?  The ERISA retirement plan should be the named insured of the bond.  A common problem is fidelity bonds that erroneously name the plan sponsor as the insured.
  • Are the correct persons covered by the bond?  Persons who should be covered by the bond are those who handle funds or other property of the insured plan.  Some fidelity bonds are structured very narrowly to cover only limited individuals, while other bonds are much broader and cover both the plan sponsor's employees and third-party vendors.
  • Is the issuer of the fidelity bond an approved company?  Only sureties and reinsurers named on the Department of Treasury's Listing of Approved Sureties, Department Circular 570 (available at http://www.fms.treas.gov/c570/c570.html), may issue adequate fidelity bonds.  In addition, neither the plan nor a party-in-interest with respect to the plan may have any control or significant financial interest in the surety or reinsurer.
  • Are all of our ERISA retirement plans covered?  For companies that sponsor more than one ERISA retirement plan, plan officials must have fidelity bonds for each plan.  Fortunately, a bond can insure more than one plan as long as a claim by one plan does not reduce the amount of coverage available to other plans insured on the bond.  Fidelity bonds can use an "omnibus clause" to name multiple plans as insured.  For example, an omnibus clause might name as insured "all employee benefit plans sponsored by ABC company."

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