Retirement plans play a crucial role in securing the financial future of employees. It’s vital to have mechanisms in place to protect these plans from mismanagement or fraudulent activities. One such mechanism is the ERISA bond

In this blog post, we’ll explore what an ERISA bond is, why it’s required, who needs it, how much it costs, and other frequently asked questions. By the end, you’ll better understand this essential component of retirement plan compliance.

What is an ERISA bond?

An ERISA bond, a type of fidelity bond, is a form of insurance that protects retirement plans covered by the Employee Retirement Income Security Act. The Act is a federal law enacted in 1974 that sets minimum standards for voluntarily established pension and health plans in private industry to protect individuals in these plans.

ERISA bonds provide coverage against losses caused by fraud or dishonesty by individuals who handle retirement plan assets (fiduciaries). ERISA bonds serve as a safeguard, ensuring that fiduciaries fulfill their responsibilities and provide financial compensation in case of a breach. 

Who needs to purchase an ERISA bond?

ERISA requires that every person who handles funds or property of an employee benefit plan be bonded (unless covered under an exemption). This includes plan trustees, administrators, custodians, and other individuals with access to plan assets

This requirement is in place to instill confidence in the retirement system and ensure that fiduciaries act in the best interests of plan participants. Non-compliance can result in severe penalties and legal consequences. 

The Fundamentals of ERISA Bonds

ERISA bonds typically provide coverage for acts of fraud or dishonesty committed by fiduciaries. Examples include theft, embezzlement, or misappropriation of funds. The bond coverage amount must be at least 10% of the funds the principal handled in the preceding year, with a minimum coverage of $1,000 and a maximum of $500,000. Sometimes, the bond requirement may be higher, such as if a plan holds employer securities. 

An ERISA bond typically covers losses caused by:

  • Larceny
  • Embezzlement
  • Theft 
  • Willful misapplication
  • Misappropriation
  • Wrongful conversion
  • Wrongful abstraction 
  • Forgery 

The bond does not cover losses caused by negligence or errors in judgment.

How much do these surety bonds cost?

The cost of an ERISA bond depends on the size of the plan and the surety company. The bond amount is typically 10% of the funds an official handles, with a minimum of $1,000 and a maximum of $500,000. It can be $1,000,000 for plans that include employer-sponsored securities like company stock or bonds.

Frequently Asked Questions

What’s the difference between an ERISA bond and fiduciary liability coverage?

An ERISA bond primarily protects the retirement plan and its participants by providing coverage for losses resulting from fraud or dishonesty by fiduciaries. 

Fiduciary liability coverage protects fiduciaries themselves against claims alleging breaches of their fiduciary duties, including errors or omissions in the plan’s administration.

Who issues ERISA bonds?

Surety companies like ZipBonds can issue ERISA bonds. Surety companies are financial institutions that specialize in providing surety bonds to businesses and individuals. These companies have expertise in underwriting and assessing the risk associated with fiduciary responsibilities.

Who is exempt from the ERISA requirement? 

Specific retirement plans, such as government plans, church plans, plans maintained outside of the U.S., and plans covering disability or workers’ compensation laws only, may be exempt. Of course, we recommend consulting with legal counsel or a qualified professional to determine whether your specific plan qualifies for an exemption.

How long does it take to get my bond?

The time required to obtain an ERISA bond can vary depending on factors such as the plan’s complexity and the bonding company’s underwriting process. In some cases, bonds can be issued within a day, while others may take a few days. Start the process well in advance to ensure timely compliance.

Apply for Your ERISA Bond Today

ZipBonds offers ERISA bonds in all 50 states, and we’ve made the bonding process easier and faster than ever. Start your application online or over the phone by calling (888) 435-4191. One of our agents will happily help you complete the bonding process as quickly as possible.

Apply for an ERISA bond in your state.