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ERISA requires that anybody who “handles funds or other property” of an employee benefit plan, including a 401(k), be bonded. A fidelity bond–an insurance policy–protects the project from financial loss due to dishonesty and fraud. An ERISA bond does not require a deductible; coverage begins at the first dollar of any loss. These bonds are purchased by the plan and paid for using plan assets.
Protects Employees
As the name suggests, ERISA bonds protect employees who participate in company-sponsored retirement plans like 401(k)s. The Employee Retirement Income Security Act of 1974 requires that anyone who “handles funds or other property” related to an ERISA plan be bonded. This requirement has a few exceptions, but an ERISA bond must cover all fiduciaries, administrators, and anyone who handles plan assets. An ERISA bond is a type of insurance fidelity bond, and it is designed to cover any losses that occur due to dishonesty or fraud committed by anyone who manages the plan. This includes theft, robbery, embezzlement, forgery, wrongful abstraction or conversion, and willful misapplication of funds. ERISA bonds are also not to be confused with fiduciary liability insurance, which is optional coverage that covers any legal claims arising out of your actions as a fiduciary. Understanding how ERISA fidelity bonds work is important to determine your ERISA bond amount requirements and how to source these necessary surety products best. To learn more, speak to one of our licensed agents, who can assist you with obtaining your ERISA bond. We offer quick online applications and flexible terms to meet your needs.
Protects Beneficiaries
Fidelity bonds are business insurance that protects companies from financial loss due to employee dishonesty or theft. For example, if a 401(k) company employee steals funds, the plan beneficiaries can file a claim against the business’s ERISA bond for reimbursement. These types of bonds are typically required by law for those who manage retirement plan assets and other funds. For this reason, they offer a layer of security that helps businesses comply with regulatory requirements. An ERISA bond is different from fiduciary liability insurance, which provides defense costs and applicable damages for breaches of fiduciary duty. While fiduciary liability coverage is optional, an ERISA bond is required for anyone who handles plan funds or property. Fidelity bonds are frequently required by state or local legislation, but they may also be a great way to create trust with customers and show your dedication to honesty. For example, many small-business owners choose to purchase business services or employee dishonesty bonds voluntarily to protect themselves from financial loss caused by their employees.
Similarly, most businesses need license bonds to operate in their area, and being bonded sends a positive message about your company’s reputation. This makes it an effective marketing tool. Old Republic Surety offers ERISA bonds to help businesses meet Department of Labor (DOL) requirements and protect themselves against losses related to dishonest acts by their employees or other parties.
Protects Employers
An ERISA bond, a type of insurance policy, covers the plan and its participants and beneficiaries from financial loss due to dishonesty or fraud by individuals associated with the day-to-day administration of the benefit plans. These individuals include plan fiduciaries, employees and others. The bond works like any other type of insurance by involving three parties: the principal (the person or business that needs the coverage), the surety and the obligee, which is the plan. The surety investigates claims and pays them up to the bond’s limits if proven valid. ERISA requires that every person who handles funds or property of the plan must be covered by a fidelity bond unless covered under one of the exemptions in Section 412 of ERISA, which includes certain banks, insurance companies and registered brokers and dealers. Anyone who oversees a company’s employee benefits, including 401(k) and other retirement plans, must obtain a fidelity bond or face consequences from the Department of Labor. The fidelity bond is a relatively inexpensive way to cover losses from fraud and dishonesty. Many plan fiduciaries also purchase fiduciary liability insurance, which provides coverage for defense costs and applicable damages for actual or alleged breaches of fiduciary duty.
