It’s wise for plan sponsors to know the difference between an ERISA fidelity bond and fiduciary liability insurance. Required by law, ERISA bonds protect the plan and participants. Though not mandated by the government, fiduciary liability insurance protects plan sponsors from being held personally responsible for breaches under the high standards of ERISA.
Best Practice: ERISA Bonds and Fiduciary Liability Insurance
In a nutshell, an ERISA fidelity bond is required to protect company sponsored retirement plans and the employees participating in them; on the other hand, fiduciary liability insurance is strongly recommended as a means of protection for fiduciaries themselves, should they face accusations of failing to uphold their obligations under the Employee Retirement Income Security Act (ERISA). In other words, while fiduciary liability insurance acts as a safeguard for those responsible for an employer sponsored plan, ERISA fidelity bonds safeguard plans and participants:
A Fidelity Bond is required for all employee benefit plans covered by ERISA. This…protects the plan and its participants from losses resulting from fraud or dishonesty. These bonds can only be purchased from companies listed in the Department of Treasury’s Listing of Approved Sureties…..The plan is the named insured in the fidelity bond and then the bond must cover any persons who handle funds or other property of the plan. Any individual whose duties or activities could result in a loss of plan funds or property as a result of fraud or dishonesty is required to be covered. The types of losses that must be covered include but are not limited to:
- Larceny
- Theft
- Embezzlement
- Forgery
- Misappropriation
- Wrongful abstraction
- Wrongful Conversion
- Willful misapplication
As these examples illustrate, an ERISA Fidelity Bond serves as protection to retirement plan participants against acts of fraud or dishonesty. To cover themselves in the event of “claims of a breach of their fiduciary duty”, plan fiduciaries, including plan sponsors, find it is in their own best interest to obtain fiduciary liability insurance:
This insurance is not required by ERISA, but many fiduciaries seek to have this coverage for their own protection. Without this coverage, a fiduciary could be personally liable for losses resulting from their fiduciary failures….Examples of a breach of fiduciary duty may include:
- Errors in administering plans such as improper enrollment or termination
- Providing poor or negligent advice on investments within the plan
- Improper denial or change in benefits
- Failures in selection and monitoring of third-party service providers
An Ounce of Prevention…
Remember, once obtained from a U.S. Treasury-listed surety, ERISA Bonds must be renewed annually to remain compliant with the Department of Labor. For plan sponsors, failure to record an up to date and adequate ERISA fidelity bond when filing Form 5500 is a common and dangerous oversight, since it is known to trigger audits and investigations.
Every business owner who’s tossed and turned at night over regulatory protocols, pending lawsuits, or even the disruption of a frivolous allegation, knows the sweet relief of having coverage for defense. But here’s the thing: you can’t wait for the “uh-oh” moment to secure fiduciary liability insurance. Indeed, being hit with a lawsuit and discovering you can be held personally liable, but have no coverage, is among the worst things that can happen to retirement plan sponsors, given the fiduciary standards of ERISA.
Defense and protection are best, and we’ve made them affordable no matter the size of your business and plan.For a few dollars a day, our Fiduciary+Cyber Liability Insurance Combo protects you with defense costs and penalty limits up to $1,000,000 if faced with alleged or actual breaches of duty in connection with the employee retirement plan.
Plus, at no extra cost, the Cyber coverage addresses Department of Labor recommendations, explicitly covering the business and the plan in the event of a cyber breach.
Don’t wait for the uh-oh moment to hit. In minutes, you can have documented proof of cyber liability coverage for the business and retirement plan, and fiduciary liability insurance to protect yourself.
Just click here: Protection for Plan Sponsors
Serving customers since 1930, Colonial Surety is the trusted source for the pension industry to secure legally required ERISA bonds, fiduciary liability insurance and cyber-liability insurance. We help safeguard plan sponsors, pension professionals and financial advisors — and keep their businesses compliant — with pain-free, efficient, and friendly service every time. Colonial Surety Company is rated “A Excellent” by A.M. Best Company, US Treasury listed and in business all across the country. Need help? Our knowledgeable, New Jersey based ERISA service team is available Monday-Friday, 8:30am-5:30pm EST at 888-383-3313 and via email: erisadept@colonialsurety.com.