ERISA Fidelity Bonds are a requirement of the U.S. Department of Labor for the protection of company sponsored retirement plans. All individuals with a role in handling the company sponsored retirement plan, must, by law, have an ERISA Fidelity Bond. Read on for answers to frequently asked questions about ERISA Fidelity Bonds.
ERISA Bonds Protect Plan Assets
The Employee Retirement Income Security Act (ERISA) specifically mandates Fidelity Bonds (aka ERISA bonds). The purpose of an ERISA Bond is to protect “the assets in the plan from misuse or misappropriation by the plan fiduciaries.” According to the Department of Labor: “Fraud or dishonesty includes, but is not limited to, larceny, theft, embezzlement, forgery, misappropriation, wrongful abstraction, wrongful conversion, willful misapplication, and other acts.” Anyone with a role in the company retirement plan must have an ERISA bond:
Every person who “handles funds” of an employee benefit plan must be bonded unless otherwise exempted. It is against the law to “receive, handle, disburse, or otherwise exercise custody or control of plan funds” without a proper bond.Most commonly, bonds are secured by the plan administrator and appointed officers (the employer, joint board, trustees, or employee recordkeeping organization).The bonding requirement includes employees of the plan and employees of the plan sponsor, as well as any service provider whose duties involve access to plan funds or decision-making authority affecting plan funds.
What If You Neglect ERISA Bond Requirements?
Failure to obtain or renew an ERISA Bond poses significant risks, including triggering audits and investigations and being held personally liable for losses that would have been covered by the ERISA bond. Not having coverage is a red flag:
Failure to carry a bond may result in a DOL investigation and/or liability exposure for the individuals responsible for your 401(k) plan. There are serious consequences for not purchasing and maintaining a sufficient ERISA fidelity bond. Not having this required coverage can be a red flag to the DOL that they need to take a closer look at the plan. You are not only at risk for a DOL audit, but there are citations associated with not having this required coverage.
ERISA Bond vs Fiduciary Liability Insurance?
An ERISA Bond is not the same as fiduciary liability insurance. While ERISA bonds are required by law to protect retirement plans, fiduciary liability insurance is a an important risk management practice for plan sponsors and other fiduciaries:
The Fidelity Bond protects the plan and its participants, while Fiduciary Liability Insurance typically protects the plan’s fiduciaries from claims of a breach of fiduciary responsibilities. 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. The cost of the insurance can be paid by the employer or the fiduciary and not the plan assets. Examples of a breach of fiduciary duty may include:
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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
One thing retirement plan sponsors do not have to do is shoulder their fiduciary risks alone: Colonial Surety Company makes it efficient and affordable to add Fiduciary and Cyber Liability Insurance to the ERISA Bond, ensuring protection for the plan, the company and the plan sponsor. When armed with our cost-efficient Fiduciary+Cyber Liability Insurance, if you face claims of alleged or actual breaches of duty in connection with the employee retirement plan, you’ll be protected with defense costs and penalty limits up to $1,000,000. Plus, the Cyber Liability Insurance provides breach response services, ensuring implementation of obligatory investigation and notification procedures, and offering coverage against lawsuits and regulatory actions.
It only takes a moment to quote and obtain affordable protection. Click here and get covered before another day goes by:
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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.
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.