Retirement plan experts observe that ERISA bonds are confusing for plan sponsors—which likely explains why so many plan sponsors fail to maintain adequate coverage and end up triggering additional compliance problems. Here’s help understanding ERISA bonds and how to obtain them, as well as advice about further protections critical for plan sponsors.
ERISA Section 412
The Employee Retirement Income Security Act (ERISA) requires ERISA fidelity bonds as a protection against theft. Specifically, as JD Supra explains: “For retirement plans, ERISA imposes a requirement that every fiduciary and every person who handles plan assets be bonded to protect the plan from risk of loss due to fraud or dishonesty. This bond must cover at least 10% of the plan’s assets, up to a maximum of $500,000 per loss…” Experts note that among the mistakes commonly made by plan sponsors are both failure to have an ERISA bond at all, and failing to have adequate coverage. In either case, plan sponsors expose themselves to personal liability—as well as regulatory action and investigation, as Fiduciary News points out:
“Some plan sponsors have a fidelity bond covering just 3-5% of total assets when it should be at least 10% according to ERISA Section 412…“Many 401k plan sponsors are simply not aware of: 1) the fidelity bond itself; 2) what’s required of that bond so that it protects the plan from losses due to fraud or dishonesty; or, 3) the risks associated with insufficient coverage, including triggering a plan audit or holding the plan fiduciary personally liable for losses that should have been covered by an ERISA fidelity bond.”
The ERISA fidelity bond required by the Department of Labor can only be obtained from a surety listed by the U.S. Department of Treasury—like Colonial Surety. As a leading national ERISA bond provider, Colonial helps plan sponsors ensure compliance. Uniquely, Colonial includes retroactive ERISA fidelity bond coverage for years when the plan was not adequately covered. Additionally, plan sponsors can opt for multi-year coverage, ensuring the ERISA bond remains Department of Labor compliant for the life of its term. Obtain ERISA Fidelity Bond Here Now.
Form 5500 and ERISA Bonds
Typically, ERISA bond related errors are often caught by the government during review of Form 5500. Annual submission of Form 5500 is another major fiduciary responsibility for plan sponsors. Essentially it is the report on the financial conditions, investments and operations of your employee benefits plan. Failure to answer the ERISA bond questions on Form 5500—or answering incorrectly can trigger IRS and DOL investigations. In the event a DOL investigation is launched, 401k Specialist advises that the onsite auditors typically use a “fidelity bond checklist” to analyze the ERISA fidelity bond for compliance with DOL requirements.
If your retirement plan runs on a calendar year, you most likely have a July 31 deadline for the submission of Form 5500. Specifically, this report on the status of your employer sponsored retirement plan is due the last day of the 7th month after the plan’s year end.
Don’t be late: failure to correctly file Form 5500 comes with steep penalties. In the event you do have a filing mishap, be sure to try using the Department of Labor’s Delinquent Filer Voluntary Compliance Program (aka DFVCP). Legal experts note that by following this process, plan sponsors can file delinquent Form 5500s with reduced penalty fees “so long as the filing is made before the DOL identifies the failure to file. The IRS will also generally waive late filing penalties for Form 5500 filers who satisfy the DFVCP program.”
Keep in mind that though ERISA bonds are required to protect the retirement plan from theft, ERISA bonds do not protect the personal assets of plan sponsors. Without coverage, even a mere allegation of a fiduciary breach can be ruinous. These days, a cybersecurity incident can rapidly spiral into a fiduciary disaster too. That’s why Colonial Surety offers an affordable Fiduciary-Cyber Liability Pack for plan sponsors.
Armed with this protection, you’ll have:
- Legal defense and coverage for penalties against claims of alleged or actual breaches of fiduciary duties—up to $1,000,000.
- Defense against lawsuits and regulatory actions related to a cyber breach.
- Expert-led response, notification and crisis management services to prevent a cyber incident from spiraling into a disaster.
We make it so fast and reasonable for plan sponsors to secure all this protection, that you can obtain yours in minutes now: Fiduciary-Cyber Liability Pack
Colonial Surety was founded in 1930 and continues giving customers the assurance that they, their businesses, and their clients are safeguarded with the right surety and insurance products at all times. We are a direct and digital insurer offering products through an online platform supported with exemplary customer service. We give customers a simple, direct, and instant service that takes the pain out of buying insurance and bonds. Colonial Surety is licensed in every state in the U.S., rated “A” Excellent by A.M. Best, and listed by the U.S. Treasury as an approved surety.