As a plan sponsor, ensuring the security of your employee retirement plan is not just a legal obligation but a critical component of safeguarding your employees’ futures. One of the key tools in fulfilling this responsibility is obtaining an ERISA fidelity bond, a requirement under the Employee Retirement Income Security Act (ERISA) of 1974. This bond acts as a financial safety net, protecting plan assets from losses due to fraud or dishonesty by individuals who handle plan funds.
What is an ERISA Fidelity Bond?
An ERISA fidelity bond is a specific type of insurance that shields retirement plans from financial losses caused by fraudulent or dishonest acts. These acts can include theft, embezzlement, forgery, and other forms of misappropriation by individuals who manage or control plan assets. The primary purpose of the bond is to ensure that the funds meant for employees’ retirement are protected and secure.
Why is an ERISA Fidelity Bond Important?
- Legal Requirement: The U.S. Department of Labor (DOL) and the Internal Revenue Service (IRS) mandate that all retirement plans of non-regulated for-profit companies, regardless of size, must be covered by an ERISA fidelity bond. This requirement is not optional and applies to anyone who handles plan assets.
- Form 5500 Compliance: When filing Form 5500, a critical annual report required by the DOL, you must report that your plan is protected by a fidelity bond. Failure to secure this bond can trigger an audit or investigation resulting in significant penalties and legal complications.
- Minimum Coverage Requirements: ERISA stipulates that the bond amount must be at least 10% of the total plan assets as of the beginning of the Plan Year, with a minimum coverage of $1,000. For plans holding employer securities, the coverage maximum is $1,000,000 per plan. This ensures that there is adequate protection proportional to the size of the plan.
- Coverage Periods: Typically, ERISA fidelity bonds cover periods ranging from one to three years. It is crucial to monitor and renew these bonds timely to maintain continuous protection and compliance with ERISA requirements.
Understanding the Legal Framework
ERISA section 412 and associated regulations set forth the requirements for ERISA fidelity bonds. These rules ensure that anyone who handles plan assets is bonded, with the bond serving as protection against losses due to fraudulent acts. The law aims to safeguard the retirement funds of employees, ensuring that these critical assets are managed responsibly and ethically.
Who Needs to Be Bonded?
The bonding requirement applies to all individuals who “handle funds or other property” of an employee benefit plan. This includes plan administrators, fiduciaries, trustees, and even service providers who have access to or control over plan assets. Essentially, if your role involves managing or disbursing plan funds, you must be bonded unless you qualify for specific exemptions under ERISA.
How to Obtain an ERISA Fidelity Bond
Securing an ERISA fidelity bond involves working with an approved surety company. The Department of the Treasury maintains a list of approved sureties, ensuring that bonds are provided by reputable companies.
Obtaining an ERISA fidelity bond is not just about meeting a legal requirement; it’s about protecting the hard-earned retirement assets of your employees. With the support of Benetrends Financial you can ensure that your retirement plan is fully compliant and secured against potential risks. Don’t leave your plan’s security to chance—make sure you are adequately bonded and that your employees’ futures are protected.
For more information on how to obtain or renew your ERISA fidelity bond, contact Benetrends Financial today. Our team is here to assist you in navigating the complexities of ERISA compliance and ensuring that your retirement plan remains secure.
Sources:
Internal Revenue Service. (2022, March 16). Employee plans: Learn, educate, self-correct, enforce project – Defined contribution plans with less than $250,000 in assets. U.S. Department of the Treasury. https://www.irs.gov/retirement-plans/employee-plans-learn-educate-self-correct-enforce-project-defined-contribution-plans-with-less-than-250000-in-assets
Colonial Surety. (n.d.). ERISA fidelity bonds. Colonial Surety Company. https://www.colonialsurety.com/fidelity-bonds/erisa-bonds/
U.S. Department of Labor. (n.d.). Protect your employee benefit plan with an ERISA fidelity bond. Employee Benefits Security Administration. https://www.dol.gov/sites/dolgov/files/ebsa/about-ebsa/our-activities/resource-center/publications/protect-your-employee-benefit-plan-with-an-erisa-fidelity-bond.pdf