ERISA section 412 and related regulations (29 C.F.R. § 2550.412-1 and 29 C.F.R. Part 2580) generally require that every fiduciary of an employee benefit plan and every person who handles funds or other property of such a plan shall be bonded. ERISA’s bonding requirements are intended to protect employee benefit plans from risk of loss due to fraud or dishonesty on the part of persons who ”handle” plan funds or other property. ERISA refers to persons who handle funds or other property of an employee benefit plan as “plan officials.” A plan official must be bonded for at least 10% of the amount of funds he or she handles, subject to a minimum bond amount of $1,000 per plan with respect to which the plan official has handling functions. In most instances, the maximum bond amount that can be required under ERISA with respect to any one plan official is $500,000 per plan. Effective for plan years beginning on or after January 1, 2008, however, the maximum required bond amount is $1,000,000 for plan officials of plans that hold employer securities.
Individuals appointed to oversee and manage these plans are called "fiduciaries." These fiduciaries must purchase bond insurance to protect these funds and their benefactors from potential fraud, mismanagement and theft.
According to ERISA, *every fiduciary of an employee benefit plan and *every person who handles funds of such plan shall be bonded in an amount equal to 10% of the funds handled (subject to a maximum of $500,000 or $1,000,000 when employer securities are included). If the plan includes non-qualifying assets, the bond amount is the greater of 10% of plan assets being handled or the value of the non-qualifying assets, whichever is greater (subject to limits stated above).
- Qualifying assets include items that are held by a financial institution such as a bank, insurance company, mutual funds, etc.
- Non-qualifying assets are those not held by any financial institution including tangibles such as artwork, collectibles, and real estate.
If the money manager who works directly for the retirement plan mismanages funds, the bond will hold that individual liable for losses. The bond amount can then be used to reimburse individuals for funds lost as a result of the fiduciary's financial mismanagement. As such, a fiduciary's bond amount must be reviewed and updated annually as the plan's assets change.
*ERISA surety bonds are not required for family or owner only plans.
These bonds are very affordable for the amount of protection they provide.
Please contact your insurance agent to assist you with opening or maintaining your ERISA bond. If you need assistance with a new bond, please feel free to contact our office.