ERISA Fidelity Bonds: Understanding the Basics

February 23, 2021

ERISA fidelity bonds protect employee benefit plans, participants and beneficiaries against losses due to acts of fraud or dishonesty. They are required by the Employee Retirement Income Security Act (ERISA) of 1974.

Administered by the U.S. Department of Labor, ERISA is a federal law that sets standards for most voluntarily-established retirement and health plans in private industry.

Who is Required to be Covered by ERISA Bonds?

Unless exempt under ERISA provisions, every individual who handles the funds or property of an employee benefit plan is required to be bonded. ERISA refers to persons who handle funds or other property of an employee benefit plan as “plan officials.” Generally, handling includes:

• Physical contact with cash, checks or similar property;
• Power to transfer funds from the plan to oneself or to a third party;
• Power to negotiate plan property (e.g., mortgages, title to land and buildings or securities);
• Disbursement authority or authority to direct disbursement;
• Authority to sign checks or other negotiable instruments; or
• Supervisory or decision-making responsibility over activities that require bonding.

What is Considered Funds or Other Property under ERISA?

The term “funds or other property” generally refers to all funds or property that the plan uses or may use to pay benefits to plan participants or beneficiaries. Plan funds or other property includes all plan investments including land and buildings, mortgages and securities in closely-held corporations. It also includes contributions from any source, such as employers, employees, and employee organizations that are received by the plan, and cash, checks and other property held for the purpose of making distributions to plan participants or beneficiaries.

How Much Coverage is Required?

Plans must be bonded for at least 10% of qualified assets or the amount of the plan, but no less than $1,000. In most instances, the maximum bond amount that can be required of any one plan official is $500,000.

It is important to make sure that the plan is named (or otherwise specifically identified) as an insured party on the bond so that the plan can recover losses covered by the bond. This information can be obtained by reviewing IRS 5500 Form filed by the plan.

What Do ERISA Bonds Cover?

ERISA bonds cover losses caused by acts of fraud or dishonesty by anyone handling funds or other property of the plan. Fraud or dishonesty includes, but is not limited to, larceny, theft, embezzlement, forgery, misappropriation, wrongful abstraction, wrongful conversion, willful misapplication and other acts.

Who Are the Parties to ERISA Bonds?

In a typical bond, the plan is the named insured and a surety company (insurer) is the party that provides the bond. The persons covered by the bond are the persons who handle funds or other property of the plan.

Where Can I Purchase ERISA Bonds?

Authorized producers can purchase ERISA bonds from RLI. Bonds must be obtained from a surety or reinsurer named on the Department of the Treasury’s Listing of Approved Sureties.

For more information on ERISA visit https://www.dol.gov/general/topic/retirement/erisa