Why you need an ERISA Fidelity Bond
When filing your annual 5500 form or 401(k) plan, your CPA or Pension Administrator may request you secure an ERISA Fidelity Bond. The Employee Retirement Income Security Act (ERISA) of 1974 went into effect to prevent funds of pension and employee benefit plans from suffering losses due to theft or fraud by the plan administrator.
The U.S. Department of Labor enforces the ERISA Fidelity Bond requirement for plan administrators engaging in the following acts.
- Disburse, negotiate or move the plan funds
- Negotiate or implement documents for the plan
- Physically handle money, checks or other assets belonging to the plan
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What does an ERISA Bond cover?
A common misconception is the bond provides coverage to the plan administrator. However, an ERISA Bond actually protects the beneficiaries of a pension or employee benefit plan.
An ERISA Bond is a 3-party contract between the obligee, principal and surety.
- The Obligee – The beneficiaries of the plan. If the plan administrator mishandles the fund and causes loss, the obligee can make a claim against the bond.
- The Principal – As the plan administrator, you are the principal associated with the ERISA Bond. If the Surety pays out on a valid claim, you’re required to make them whole again.
- The Surety – The surety is the company you choose to issue your bond. An investigation is carried out when a claim against the bond is made. If the surety finds the claim to be valid, they will payout up to the full bond amount.
As the plan administrator, you can choose to purchase Fiduciary Liability Insurance. While not a requirement, this optional coverage benefits you if you fail to maintain your fiduciary responsibilities.
What is the ERISA Bond amount requirement?
Calculating the bond amount for your ERISA Bond is fairly straightforward. Your ERISA Bond amount needs to be 10% of the plan funds you handled the previous year, but cannot be less than $1,000. If you’re unsure of what to select for your bond amount, we recommend contacting the U.S. Department of Labor to verify your bond amount requirement.
The U.S. Department of Labor requires the plan administrator to have an ERISA Bond when managing funds tied to a 401(k) plan.
How much does an ERISA Bond cost?
Our ERISA Bonds start at low as $100. However, there are a few factors to consider when determining the cost of your ERISA Bond. Your bond cost is influenced by the bond amount you need and the term length you select. Although, the initial cost is more for a bond with a multi-year term, we discount these bonds; saving you money. Plus, your bond won’t need to be renewed for 3 years, instead of an annual renewal.
If your plan funds increase mid-term, you don’t have to pay additional premium because all our ERISA Bonds $500,000 and under include “Inflation Guard”. This means you’ll remain compliant with the U.S. Department of Labor if plan funds increase mid-term with no extra cost to you.
ERISA Bonds with a bond amount of $500,000 or less do not require a credit check. Your credit score does not influence the cost of your ERISA Fidelity Bond.
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What happens if a claim is made?
The beneficiaries of the pension or employee benefits plan can make a claim against your ERISA Bond if they experience loss due to you mishandling plan funds. If a claim is made, the surety company that issued your bond will conduct an investigation to determine the validity of the claim. Acts of fraud or dishonesty by the plan administrator could be embezzlement, forgery, larceny, misappropriation, theft or willful misapplication, to name just a few examples.
If the surety finds the claim to be valid, they will payout up to the full bond amount to the claimants. The responsibility to repay the surety in full rests on you, as principal of the bond. Ultimately, the ERISA Bond is coverage for the plan beneficiaries, not for you, the plan administrator.
Where to get an ERISA 401(k) Bond
At Surety Solutions, A Gallagher Company, we’ve made the process of getting an ERISA Fidelity Bond quick and easy. Simply select the bond amount you require using the drop down below, then click the “View Quotes” button. You’ll receive instant quotes from top surety companies, including CapSpecialty Surety & Insurance Specialists, The Hanover Insurance Company, Westfield Insurance Company and many more. Choose the quote that best fits your needs and submit your application to buy your bond.
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