The Employee Retirement Income Security Act (ERISA) is a law enacted by the US government to help regulate retirement and health plans. The law contains numerous policies to make plans more secure for beneficiaries by protecting them from the negligent and dishonest acts of plan administrators. One of these mechanisms is requiring all parties with fiduciary duties to get a surety bond.
In this post, we will cover everything you need to know about ERISA bonds including how the bonds work and who needs to get bonded.
How do ERISA bonds work?
ERISA bonds are a type of fidelity bond designed to provide financial protection to people that enroll in employee benefits plans or retirement plans. Because plan administrators have such control over the plan assets, there is an inherent risk to enrolling in a plan.
ERISA bonds protect against any misconduct or dishonest acts from plan administrators. This includes theft, embezzlement, misusing funds, using the plan for personal gain, forging documents, or any conflicts of interest. They are similar to fiduciary liability insurance in that they protect against fraud, but they function in a fundamentally different manner.
If the dishonest actions of a fiduciary damage another party, the damaged party can file a claim against the bond. If the claim is valid, the surety company will pay the damaged party (up to the value of the bond). The fiduciary is ultimately responsible for reimbursing the surety company for any damages paid.
ERISA bonds must be issued by a surety company approved by the Department of Treasury.
Who needs an ERISA fidelity bond?
Any person that performs fiduciary duties for a retirement plan must get an ERISA bond. Below are some examples of the tasks this rule pertains to.
- Signing checks
- Transferring retirement plans
- Working with cash
- Negotiating use of the plan’s funds
- Disbursing funds
- Supervising any of these activities
There are exemptions to the ERISA bond requirement. Administrators for the following types of plans do not need to get a bond:
- Church employee plans
- Government pensions
- “Unfunded” plans (plans where all benefits are paid from the company’s assets)
- Plans covering disabilities
How much does an ERISA bond cost?
All parties that require an ERISA bond must get bonded for an amount equal to 10% of the plan’s funds. If the plan includes non-qualifying assets, the required bond amount is the greater of 10% of the funds being handled or the value of non-qualifying assets.
Non-qualifying assets are any that are not held by a financial institution. Examples of non-qualifying assets include real estate, artwork, and collectibles. Anything held at a financial institution is a qualifying asset.
Given that they are based on the size of the benefit plan, the required bond amount for ERISA bonds can vary considerably. You can find bond amounts anywhere from $10,000 to $500,000.
Your cost to obtain the bond is not the same as the bond amount. You only need to pay a small percentage of the required amount as a premium. The surety company determines your premium by evaluating your financial standing, work experience, and other factors.
Get your ERISA bond with EZ Surety Bonds
If you need an ERISA bond, EZ Surety Bonds can remove the hassle from the bonding experience. We offer quick turnaround times and competitive rates for ERISA bonds across the country.
Apply online today or contact us with any questions.