Understanding the Importance of ERISA Bonds in Protecting Employee Benefits
ERISA requires that anyone who “handles funds or other property” in an employee benefit plan be bonded unless they qualify for an exemption. These bonds, commonly known as fidelity bonds, insure against losses from fraud or dishonesty by plan fiduciaries. The bonds protect the plan against theft, embezzlement, forgery and other acts of dishonesty. The bond values fluctuate based on the total value of plan assets being handled, and monitoring these changes is essential.
Fiduciary Liability Insurance
The personal assets of plan fiduciaries who are sued for breaching their obligations to their employer and employee benefit plan members are protected by fiduciary liability insurance. This includes pensions, profit-sharing programs such as 401(k)s and stock purchase plans. Fiduciary liability policies generally cover legal costs and indemnity payments up to a certain limit. An ERISA bond protects plan participants from losses caused by fraud and dishonesty, including theft, embezzlement, forgery, misappropriation and wrongful abstraction. The ERISA bond is typically required for anyone who handles funds or property of the plan and must be issued by a surety company listed on the Department of the Treasury’s listing of approved sureties. An ERISA fidelity bond is a legal requirement for anyone who manages a company’s retirement plan fund or has administrative fiduciary responsibilities for the fund. Fiduciary liability insurance is not required, but it is a good option for those with fiduciary duties.
Fiduciary Fidelity Insurance
Fidelity bonds are mandatory under ERISA for all plan fiduciaries who handle funds or other property. These bonds are meant to cover losses due to fraud or dishonesty – like theft, embezzlement, forgery, and misappropriation. Fidelity bonds are different from fiduciary liability insurance. Fiduciary liability insurance, although often confused with fidelity bonds, insures fiduciaries against claims related to breach of their fiduciary duties and typically excludes coverage for EBL and ERISA violations. Consider this scenario: Smith & Sons hires InvestCo to manage investments in their retirement plan. Two years later, it was discovered that InvestCo’s employees had been skimming small amounts off the plan’s investment returns. Fortunately, because InvestCo has invested in a fidelity bond, the program will be reimbursed for the stolen funds. This type of incident is relatively rare, but it highlights the importance of ensuring that all fiduciaries are properly bonded. The cost of a fidelity bond is usually very low relative to the amount insured.
Fiduciary Mismanagement Insurance
The ERISA fidelity bond is required of anyone who handles funds or other property in an employee benefit plan. The purpose of this bond is to protect the project’s assets from loss caused by fraud or dishonesty by the person handling those assets. The act governing ERISA prescribes minimum and maximum amounts for this bond, with the full amount for those managing funds or other property reaching $1 million. There are exemptions for regulated financial institutions such as select banks, insurance companies, registered brokers, and dealers. Suppose a fiduciary is sued by your staff or customers who think their retirement or benefits account has been mismanaged. In that case, this type of bond typically pays for legal fees and any awards or settlements the plaintiff receives. Without this coverage, a fiduciary must pay those expenses out of pocket. This is why having this kind of protection is essential.
Administrative Liability Insurance
ERISA bonds are types of fidelity insurance that safeguard employee benefits and pension plans from financial loss due to dishonesty. Under the Employee Retirement Income Security Act (ERISA), these bonds are required by those who handle funds or other property of an ERISA-covered plan. The bonding process starts with an application to the provider, who will typically require information about your project, including its legal name, prior loss history if applicable, contact details, number of trustees and more. The Department of Labor requires that ERISA bonds cover losses caused by fraud or dishonesty, including but not limited to larceny, theft, embezzlement, forgery, misappropriation, wrongful abstraction, wrongful conversion and willful misapplication. It is also possible to purchase fiduciary liability insurance separately, which is not required by ERISA. Fiduciary liability insurance covers business owners and employees for unintentional fiduciary breaches while handling plan assets. Many businesses choose to pursue a separate but complementary type of coverage.
