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What is an ERISA bond?

An ERISA bond is another form of insurance for employee benefit plans required by the U.S. Department of Labor. It protects plan participants against losses due to these fiduciary acts:

  • Fraud
  • Dishonesty
  • Other criminal behavior

In most instances, a fiduciary is a person who exercises some amount of power and control over the plan. Fiduciaries in an ERISA-qualified pension plan include the following:

  • The investment manager
  • Investment advisors
  • Trustee

Unlike standard insurance, the ERISA bond is not meant to cover total losses. It will only cover up to a pre-calculated payout amount.

There's already insurance on my pension plan. Does that mean an ERISA bond is unnecessary?

No. Pension plan insurance covers plan participants if their company goes insolvent. In insolvency, the insurance will pay the plan participants up to a defined maximum. Although ERISA does not require a pension plan, it does require fiduciaries to meet specific requirements. It also requires fiduciaries to disclose certain information to eligible plan participants.

Are ERISA bonds required by law?

Yes, unless you fall into one of the plans that Title 1 of ERISA does not cover, such as the following:

  • Government plans
  • Church plans
  • Workers' compensation, disability, and unemployment plans
  • Unfunded employee benefit plans
  • Excess benefit plans.

Also, most banks, insurance companies, and registered brokers are exempt.

What happens if there's no ERISA bond coverage for the plan?

If there's a loss due to a fiduciary's criminal act, such as fraud or theft, the fiduciary will have to pay out-of-pocket for the losses. In other words, they will become personally liable for the losses. So, losses will be accounted for in most cases unless the fiduciary doesn't have the personal assets to cover the losses.

Are there specific ERISA bond requirements?

ERISA bonds have several requirements as outlined by the statutory provisions of ERISA § 412:

  • The bond must have a minimum payout of at least 10% of the plan assets. The minimum payout is $1,000, and the maximum is $500,000 or $1,000,000 for bonds that hold employer securities.
  • The bond cannot have a deductible.
  • The bond must identify the plan so that representatives can make a claim under the bond, for example, the name of the retirement plan or a trust.
  • The bond amount must be fixed annually for each fiduciary, depending on the plan asset total.
  • The plan must be placed with a U.S. Department of the Treasury-approved surety or reinsurer. The plan fiduciaries cannot have any control or interest in the surety or reinsurer.
  • The bond must cover ERISA regulation criminal losses.

Is an ERISA bond expensive?

No. The premiums for ERISA bonds tend to be relatively low cost. The price depends on the total plan assets, but most insurance companies charge between $100 and $300 per year for ERISA bond coverage.

What conduct does an ERISA bond cover?

ERISA contains many civil and criminal provisions. ERISA bonds specifically cover criminal acts by fiduciaries. These acts include, but aren't necessarily limited to:

Is an ERISA bond always necessary, in practical terms?

No. An ERISA bond is only sometimes necessary, though having one is encouraged. In some cases, an existing corporate fidelity bond arrangement is in place, so an ERISA bond may be redundant. Like ERISA bonds, corporate fidelity bonds cover fiduciary acts that are:

  • Dishonest
  • Fraudulent
  • Criminal behavior
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