Your decision to offer your employees benefits such as group health plan coverage, profit-sharing plans, and pensions or retirement savings is one that both your current workforce as well as any potential new hires will appreciate and value. Of course, in doing so, you make yourself and your organization subject to the oversight standards imposed by the Employee Retirement Income Security Act. To remain compliant with ERISA regulations, you may choose to employ a third-party provider to oversee the administration of your employee benefit plans. This, however, does not free you from liability, particularly in cases when the funds supporting your plans are mismanaged. An ERISA Fidelity Bond can, however, offer you some protection. Listed below are some common questions regarding these bonds.
- What Is It?
An ERISA Fidelity Bond is a form of insurance offered that protects your employee benefit plans from any losses that are determined to have been caused by fraud or dishonesty. This coverage is limited to those actions performed by people who handled either the funds or the property supporting your benefit plans. In this way, they differ from fiduciary liability insurance. Fiduciary liability coverage applies strictly to cases of breach of fiduciary duty. If you maintain discretionary control over your plan benefits (i.e., determining who qualifies for benefits), then you remain the fiduciary of your plan. This is true even if you choose to outsource its administration to a third party. If you fail to manage the plans themselves adequately, then that may qualify as a breach of fiduciary duty. Your ERISA Fidelity Bond, on the other hand, protects your plan from any fraudulent activity perpetrated by the third party that administers it.
The definition of “fraud or dishonesty” as it applies to an ERISA bond includes:
- Willful misappropriation or misapplication of funds
- Wrongful conversion or abstraction
- Who Has to Be Bonded?
Anyone who handles any of the funds or property supporting an employee benefit plan must be bonded. Handling funds includes actual physical contact with bank notes, cash, and checks. It also includes those who have power to transfer or disburse funds, negotiate deals relating to plan property, and make decisions regarding who handles these activities. The funds or property supporting a plan can be employee contributions, securities held by your organization, and any properties or investments funded by plan assets.
Given the information provided above, you can assume that parties such as plan sponsors, administrators and trustees must be bonded, as must service providers such as third-party administrators or accounting firms that handle plan disbursements or offer investment advice. While your role as plan sponsor requires that you be bonded, others also classified as fiduciaries may not have the same requirement. This may include members of employee review boards who make decisions on participant eligibility but have no access to the plan’s assets.
Certain entities that are specially regulated by the Department of Labor also do not have to be bonded, even in the event that they are involved in managing your plan’s assets. These include certain banks, brokerage firms, and insurers.
- Will All of Your Employee Benefit Plans Fall Under Bonding Requirements?
No. Plans paid out of either your own general assets or those of an employee union are considered to be unfunded. These require no ERISA bond; the same applies to certain institutional or public plans, which may include plans offered through a church or charitable organization or government employee plans. However, for the most part, the vast majority of privately sponsored plans will meet requirements. You can offset the costs of all of your plans requiring bond protection by paying for the bond out of the plan assets themselves.
- Who Offers ERISA Bonds?
ERISA Fidelity bonds are usually only made available through a select group of providers. These can be found on the Department of the Treasury’s Listing of Approved Sureties.
Maintaining an ERISA Bond offers added peace of mind in knowing that should the management of your benefit plans go awry, you and your workforce will be protected.
The content on our website is only meant to provide general information and is not legal advice. We make our best efforts to make sure the information is accurate, but we cannot guarantee it. Do not rely on the content as legal advice. For assistance with legal problems or for a legal inquiry please contact you attorney.