With few exceptions, individuals with responsibilities for a company sponsored retirement plan are required, by law, to obtain an ERISA Fidelity Bond. Even outsourcing plan services represents decision-making on behalf of the plan, so the ERISA bond requirements remain in effect. Ensure compliance with these pointers.
Section 412: The ERISA Act and ERISA Bonds
The Employee Retirement Income Security Act (“ERISA”) requires the sponsors of tax-qualified retirement plans to obtain fidelity bonds, which are typically referred to as ERISA bonds. It’s important for plan sponsors to understand that ERISA bonds do not protect them personally; the purpose of ERISA Bonds is to protect the plan:
An ERISA Bond is a type of insurance that protects a plan against losses caused by acts of fraud or dishonesty. Fraud or dishonesty includes, but is not limited to, larceny, theft, embezzlement, forgery, misappropriation, wrongful abstraction, wrongful conversion, willful misapplication, and other acts….The ERISA Bond is different from fiduciary insurance. The ERISA Bond protects plan participants from the acts of fraud or dishonesty described above. However, fiduciary insurance protects a plan fiduciary from claims relating to a fiduciary breach under ERISA. Thus, the ERISA Bond protects plan participants while fiduciary insurance protects plan fiduciaries…..Under ERISA, every person who “handles funds or other property” of an employee benefit plan is required to be bonded unless covered by an ERISA exemption. ERISA makes it an unlawful act for any person to “receive, handle, disburse, or otherwise exercise custody or control of plan funds or property” without being properly bonded.
Since ERISA bonds protect the plan–not the sponsor, fiduciary liability insurance is a best practice for plan sponsors, even though it is not required by the Department of Labor. Only fiduciary liability insurance provides sponsors with protection from personal liability for breaches under the high standards of ERISA law. Note too, that the phrase “handles funds or other property” related to ERISA bond requirements has broad implications:
In application, the “handles funds or other property” qualification generally encompasses the ERISA plan administrator and those officers and employees of the plan or plan sponsor (employer, joint board, or employee organization) who handle plan funds by virtue of their duties relating to the receipt, safekeeping and disbursement of funds.
“Funds or other property” generally refers to all funds or property that the plan uses or may use to pay benefits to plan participants or beneficiaries. Plan “funds or other property” includes all plan investments such as land and buildings, mortgages, and securities in closely-held corporations. It also includes contributions from any source (such as employers, employees, and employee organizations) that are received by the plan, and cash, checks and other property held for the purpose of making distributions to plan participants or beneficiaries.
As the American Society of Pension Professionals and Actuaries (ASPPA) reminds us, neglecting to obtain an ERISA bond from a Treasury-listed surety, is a very unwise move for any business sponsoring a retirement plan: “The annual Form 5500 series has a question about whether the plan is covered by a bond and how much the bond is….It is naive to think that one can go without a bond and not have it come to the attention of the regulators. It’s right there on the Form 5500 for anyone to go online and see.” To avoid triggering audits, investigations and penalties, plan sponsors need to maintain ERISA bond compliance. Legacy Retirement Solutions offers further pointers on the required bond amount.
Compliance and Protection for Plan Sponsors?
Colonial Surety Company, a leading, national and Treasury-listed bond writer, makes obtaining and renewing an ERISA Fidelity Bond fast and easy–and you can affordably add on Fiduciary Liability Insurance to protect yourself too!
We’ve got everything plan sponsors need to be compliant and protected:
- Just Log In, then: get a quote, pay, and download your proof of ERISA Bond.
- Choose Multi-year options: Lock in rates and avoid future compliance hassles.
- Add on Fidelity Liability Insurance to safeguard against personal liability: for a few dollars a day, you’ll be covered 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.
- Cyber liability coverage is included at no extra cost, providing additional protection–for the plan and your company–against regulatory actions related to data and privacy, as well as expert response services.
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.