Understanding ERISA Fidelity Bond Requirements

Posted: August 06, 2019

Also known as a 401(k) bond, ERISA bonds offer protection for participants in employee benefits plans. Under U.S. law, benefit plan fiduciaries and plan managers are required to obtain an ERISA bond. Learn more about the bond requirements below, and contact King Street Agency today to request a quote.

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Who Needs An ERISA Bond?

Under the Employee Retirement Income Security Act (ERISA) of 1974, those who manage employee benefit plan assets are required to obtain an ERISA bond. This bond is meant to protect the fund and employee participants from losses due to fraud, mismanagement, or theft of benefit plan funds.

Any benefit plan officials and/or fiduciaries who perform the following duties are required to be covered by the bond:

– Handling or signing cash, checks, and other securities

– Transferring or disbursing benefit plan funds

– Negotiating benefit plan properties

– Supervising benefit plan management activities

Note that the bond requirements do not apply to unfunded benefit plans. Speak with an agent to discuss your bonding needs.

Bond Coverage Requirements

Here are the basic coverage requirements for ERISA fidelity bonds:

Bond Amount. According to the law, every plan official must obtain a bond in the amount of at least 10% of the benefit plan funds they handle, with a maximum of $500,000 per plan. Note, however, that the maximum bond amount is $1,000,000 for plans that hold employer securities.

Coverage Duration. The law requires continuous coverage, starting on the first day of the plan year. Your ERISA bond must be updated annually and should reflect any changes to fund amounts. Multi-year bonds with inflation protection may also be available in some cases.

What Does It Cost?

While the bond amount may seem steep, this is not the total amount that the bond owner (also known as the principal) will pay. Instead, the principal will only pay a fraction of the total bond amount, known as the premium rate.

Premium rates are calculated on an individual basis. Factors that can impact your final premium rate include your creditworthiness, number of fiduciaries / plan managers that need to be covered, and more. “Blanket bonds” may also be available to cover all fiduciaries / plan managers for a fee.

The easiest way to determine the premium rate you will pay is to request a free quote. Our agents will get back to you within 24 hours.

How Does It Work?

As mentioned above, the purpose of an ERISA bond is to protect employee benefit plans and their participants. In the event of a negligent or malicious act on the part of a plan fiduciary or manager, a claim can be filed against the bond, up to the total bond amount.

Once a claim is filed, the surety provider will investigate the claim to ensure it is valid. If valid, the surety will pay out the claim, but the bond owner (the principal) is ultimately responsible for repaying the surety—under a process known as indemnification.

For example, if an employee benefit plan manager embezzles funds from the plan, a claim can be filed against the bond. An investigation will ensue, and if found to be valid, the surety will pay out the claim. The party who embezzled the funds will be ultimately responsible for reimbursing the claim.

How Long Does It Take To Get Bonded?

For principals requiring bonds under $500,000 of coverage, King Street Agency can issue bonds on the same day of purchase. If you need a bond with greater coverage, the process can take a little longer, as we will need to obtain more information from you, and you may need to go through an underwriting process.

Get Your ERISA Bond Today

At King Street Agency, we are proud to offer a full range of commercial coverages. Our knowledgeable agents are on standby to discuss your business insurance and bonding needs. Contact us today to discuss your ERISA bond requirements and request a free quote.

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