In a November 6, 2018 ERISA Advisory Council report, the Council recommended the Department of Labor (DOL) issue new ERISA fidelity bond guidance after evaluating current DOL regulations and guidance. In the report to Secretary of Labor Alexander Acosta, the Council weighed factors including current persons covered, covered losses, adequacy of current bonding requirements, and the potential need for more education on bonding while also hearing witnesses on those matters.
Witness’ main issues were the rising threat of cyber crime and social engineering potentially causing losses to plan participants in the future. The witnesses, however, did not cite the risk of fraud or dishonesty covered by ERISA fidelity bonds as a reason for the increased risk of loss to plan participants. Witnesses also stated that more education would be a positive, as many smaller plan sponsors and their service providers currently aren’t particularly familiar with ERISA Section 412 requirements. As for third party coverage, the witnesses state that there is a market for it but plan officials are not always clear on third party coverage available.
The Council stated that it did not receive any testimony or research indicating a potential of harm to plan participants due to an insufficient bond amount or even a lack of an ERISA fidelity bond at all. This may possibly simply be due to owning different insurance products covering similar losses.
Based on the available evidence, the Council has stated that the market is effectively covering the need for ERISA fidelity bond coverage as the bonds are widely available and relatively inexpensive. The Council also came to the conclusions that language in the bonds was not causing too many losses to be left uncovered, there was no evidence of widespread losses due to losses exceeding the bond amount, and small employee benefit plans were the sources of most reported losses. The most impactful reasons for those losses, according to the Council, were general confusion around and lack of awareness of fidelity bonding requirements. A mismatch in language between temporary regulations and the ERISA Act appears to be one major reason for the confusion regarding the ERISA fidelity bonding requirements.
The Council’s plan to alleviate these current concerns involves issuing guidance specifically directed at plan administrators, plan sponsors, and service providers concerning how to purchase an ERISA fidelity bond that complies with applicable DOL standards.
If you would like to learn more about about purchasing a Department of Labor Compliant ERISA fidelity bond, including a package with fiduciary liability insurance and cyber liability insurance, call 888-383-3313, or email ERISADept@colonialsurety.com. Learn more about becoming a pension professional partner.