The Employee Retirement and Security Act (ERISA) specifically requires those responsible for company sponsored retirement plans to obtain a fidelity bond, known as an ERISA bond, to protect the plan against losses due to dishonesty or fraud.
Five Important Facts About ERISA Bonds
1.Section 412 of ERISA requires ERISA Bonds to “protect employee benefit plans from risk of loss due to fraud or dishonesty on the part of persons who ‘handle’ plan funds.”
2. Section 412 of ERISA further underscores: “Every fiduciary of an employee benefit plan and every person who handles funds or other property of such a plan shall be bonded.” This includes all those with decision-making responsibilities for the plan.
3. ERISA fidelity bonds can only be obtained from a U.S. Treasury-listed surety company. The amount of an ERISA Bond is determined by Department of Labor (DOL) specifications, based on plan assets. ERISA bond compliance lapses caught through the annual submission of Form 5500 are known to trigger investigations and audits by the IRS and DOL.
4. An ERISA bond protects the plan—not the person required to obtain it. As the DOL explains: “In a typical bond, the plan is the named insured and a surety company is the party that provides the bond….As the insured party, the plan can make a claim on the bond if a plan official causes a loss to the plan due to fraud or dishonesty.”
5. ERISA bonds are not the same as fiduciary liability insurance. Whereas ERISA bonds protect the plan from acts of fraud or dishonesty, only fiduciary liability insurance provides personal protection to plan sponsors in the face of mismanagement claims or breaches under the high standards of ERISA.
ERISA Bonds and Risk Management For Plan Sponsors
As a Treasury-listed and leading, direct and national writer of ERISA fidelity bonds, Colonial Surety makes it easy for plan sponsors to obtain their required ERISA bonds, while also substantially reducing their own liabilities via fiduciary and cyber coverage.
With cyber threats to retirement plans on the rise, the DOL now urges cyber liability insurance that explicitly covers the business and plan. Additionally, it’s ever more important for plan sponsors to protect themselves: even a relatively small cyber incident can result in a fiduciary breach allegation that puts personal assets at risk. As employee benefit experts from Bricker Graydon underscore:
Without fiduciary liability insurance you…can be held personally liable for a breach of fiduciary duties. These claims are almost always very costly. Not only are the costs of going to court and defending yourself high, but the chances of losing or having to settle are also incredibly high… Without fiduciary insurance, an accusation can cripple an ill-prepared business.
Colonial’s affordable Fiduciary+Cyber Liability Insurance Combo addresses Department of Labor recommendations, explicitly covers the business and the plan in the event of a cyber breach—and significantly reduces personal risks.
Opt in to add Fiduciary and Cyber Liability to your ERISA Bond, and for less than a few dollars a day, you’ll immediately have documented proof of cybersecurity coverage for the business and plan, and defense costs and penalty limits up to $1,000,000 for yourself, if faced with alleged or actual breaches of duty in connection with the employee retirement plan.
ERISA Bond+Liability Insurance HERE
Need Help?
Our knowledgeable, New Jersey based ERISA service team is available directly, Monday-Friday, 8:30am-5:30pm EST at 888-383-3313 and via email: erisadept@colonialsurety.com.
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.