The Employee Retirement Income Security Act of 1974 (ERISA) regulates and establishes minimum standards for employee pension plans in private industries. ERISA was enacted to protect the interests of employee benefit plan participants.
ERISA generally requires that every fidicuiary of an employee benefit plan be bonded with an ERISA Bond.
What is an ERISA Bond?
An ERISA Bond is a type of Fidelity Bond that protects beneficiaries of employee benefit plans.
The bond works to protect beneficiaries from dishonest acts done by a fiduciary. This includes protecting against loss of assets, and protecting against fraud, theft, and/or embezzlement.
How Does an ERISA Bond Work?
If a fiduciary commits one of the above acts, someone can make a claim against their ERISA bond.
If a surety company has to pay out on a bond claim, the fidicuary is responsible for repaying the surety company for every penny.
ERISA Bonds should not be mistaken for the typical Errors and Omissions insurance. These are not the same products.
Errors and Omissions insurance protects the fiduciary; an ERISA Bond protects the beneficiaries of the plan(s) the fiduciary manages.
ERISA Bond Coverage & Cost
Fiduciaries are required to be bonded for at least 10% of the amount of funds they handle. In most cases, the maximum bond amount for any one plan is $500,000.
However, higher bond amounts can be purchased. For example, for fiduciaries that hold employer securities, the bond amount could be as much as $1,000,000.
The decision to purchase an ERISA bond which exceeds these limits is a fiduciary decision but still subject to ERISA’s standards of prudence.
The price the fiduciary pays for their bond is called the bond premium. Bond premiums are often very inexpensive for the amount of coverage.
Premium starts at $100 and goes up to $400 for the coverage below $500,000.
For coverage over $500,000, the bond premium ranges from $400-$650.
ERISA Bond Requirements
ERISA Bonds must cover losses from the first dollar of the loss and may not include a deductible. They should cover the year after the termination of the bond as well, so that if losses are discovered after the termination of the bond the plan will still be insured against these losses.
For more information about ERISA Bonds, view 10 Facts You Should Know About ERISA Fidelity Bonds.