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Dec 2023

ERISA Fidelity Bonds

By Ken Cranstone, CFP®

If you are a sponsor of a 401(k) or other type of employee retirement plan, then you’re likely familiar with the Employee Retirement Income Security Act (ERISA) set of rules and standards for conducting plan business. These regulations came about to prevent private employee benefit plans from being mismanaged or abused. In coordination with those regulations, ERISA requires that individuals who handle funds or other property related to the plan carry an ERISA Fidelity Bond.

What Is An ERISA Fidelity Bond?

Bonds are common instruments to protect consumers and are used in a variety of places. Plumbers, cleaners, car salesmen, and many other professions carry bonds as a way of making sure that end consumers are made whole if the producer engages in any harmful practices (e.g. fraud or theft). An ERISA Fidelity Bond is just like these bonds, and it’s in place so that if a retirement plan sponsor or administrator decides to run off with plan assets, the end employees who have been diligently contributing to their 401k, can be protected.

Is An ERISA Fidelity Bond Insurance?

No, it is not. An insurance policy is typically a financial agreement between a consumer and an insurer to protect their interest or ownership in something. A Fidelity Bond, in contrast, protects someone else’s interest or ownership in something. A bond does not protect retirement plan sponsors if they get are sued.

Additionally, ERISA Fidelity Bonds only protect retirement plan participants.

Who Needs To Be Covered By The ERISA Fidelity Bond?

Any person who “handles funds or other property” of an ERISA retirement plan is typically required to be bonded unless there is an existing exemption. “Handles” refers to access and control over the funds within a retirement plan. If you were to request a distribution from a retirement plan, someone has to authorize it, so you can get a check or transfer. The authorizing party in this instance is someone who “handles” plan assets.

As for the “funds or other property,” this generally refers to anything that can be used to pay benefits to plan participants or beneficiaries. More often than not, this means investment assets and cash.

How Large Of An ERISA Fidelity Bond Do You Need?

Each party who “handles funds or other property” must have a bond for at least the lesser of 10% of the plan assets he or she handled in the previous year, or $500,000 ($1,000,000 for plans that have employer securities). The minimum purchase size of a Fidelity Bond is $1,000, so for retirement plans with less than $10,000 in assets, the minimum level of coverage will be greater than 10%, by default. Additionally, there are no rules restricting the size of the bond, so individuals can be bonded more than the listed minimums.

Where Do You Acquire An ERISA Fidelity Bond?

The Department of Labor maintains a list of certified companies where you can purchase the bond. ERISA Bonds typically must be purchased through one of these approved sureties.

The information provided herein is for educational purposes only, and should not be construed as advice, including, but not limited to tax, legal, insurance, investment, or retirement advice. For your specific planning needs, please seek the advice of Integris Wealth Management, your tax accountant, attorney, insurance agent, or other professional as appropriate. Investing involves the risk of loss.


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