ERISA bonds, 401k bonds and ESOP employer security bonds are fiduciary bonds that are mandatory for most retirement or employer security plans with a few exceptions. These bonds are like an insurance policy that protect your plan assets from losses caused by fraudulent behavior such as embezzlement, theft, larceny and misappropriation by those with access to plan’s funds.

ERISA Section 412 requires plans with more than one participant to have fidelity bond in the amount of 10% of the trust or plan, with a $1,000 minimum and $500,000 maximum per plan, where more than one plan may be required to exceed $500,000 max.

For ESOP and KSOP plans where employer securities are included, the max required is $1,000,000 for each plan named on a bond.

For example (from Dept of Labor), assume your company’s plan has funds totaling $1,000,000. The plan trustee, named fiduciary and administrator are three different company employees that each have access to the full $1 million. Each has the power to transfer plan funds, approve distributions, and sign checks. 

Under ERISA, each person must be bonded for at least 10% of the $1 million or $100,000. You can reference the DOL Requirements here: https://www.dol.gov/agencies/ebsa/employers-and-advisers/guidance/field-assistance-bulletins/2008-04

Bond amount is fixed annually and is based on the previous reporting year’s highest amount of funds handled evaluated at beginning of the year when prior year data is available. Since plans often do grow, we like to write ERISA Bonds with an “Inflation Guard” provision when multi-year term. The Inflation Guard feature automatically increases the bond coverage amount during multi-year terms to the 10% of plan assets requirements, protecting you against compliance failures when the plan grows. Be sure to let us know so we can double check that you’re good to go.

Application is below. Form 5500 is the Annual Return/Report of Employee Benefit Plan that the IRS, Dept of Labor, Dept of Treasury require for reporting. The schedules ask “Was this plan covered by a fidelity bond?” and asks if the plan had a loss either reimbursed or not by the plan’s fidelity bond caused by fraud or dishonesty. You can apply for a fidelity bond online below.

No, they are different. Fiduciary bonds are required under section 412 of ERISA. Fiduciary liability insurance is not required and insures the plan against losses caused  by breach of fiduciary responsibilities.  

 Directors & Officers (D&O) insurance policies may sometimes include a general fidelity bond, which may or may not satisfy the requirements for ERISA fidelity bonds. Because coverage differs from insurance policy to insurance policy, review the policy to determine whether a separate fidelity bond is included and meets all ERISA requirements. Because of the rising cyber security risks associated with employee retirement plans, the DOL has issued guidance emphasizing separate protections against cyber threats from the ERISA bond are needed.

Who are the parties to an ERISA fidelity bond?

The plan whose funds are being handled must be specifically named as the name insured so plan representatives can make a claim under the bond in event of a loss due to fraud or dishonesty. The surety is the party that provides the bond. The persons “covered” by the bond are the people who handle funds or other property of the plan (i.e. plan officials). The insured party (aka the plan that is “name insured” on the bond) can make a claim on the bond if a plan official causes a loss to the plan due to fraud or dishonesty. The DOL allows substantial flexibility with the bond forms as long as section 412 ERISA requirements are met. In the case of multiple plans, an “omnibus clause” is alternative way to identify multiple plans as insured on one bond, rather than specifically naming each individual plan.