ERISA Bonds: All You Need to Know

ERISA bonds are designed to protect employee retirement and benefit plans. Any plan official that manages a retirement or benefit fund is required to purchase an ERISA bond. If there is any fraud, theft or misappropriation of funds, the beneficiaries of the fund can claim against the bond for financial reimbursement.

To help you understand exactly how this type of surety bond works, we’re taking a look at everything you need to know about the ERISA bond.

What Is an ERISA Bond?

An ERISA bond is a type of surety bond that’s specifically designed to protect employee retirement plans. It’s a type of fidelity bond that’s required by the Employee Retirement Income Security Act (ERISA). All individuals and entities in charge of managing employee retirement and benefit plans are required to purchase an ERISA bond.

The bond protects the beneficiaries of employee plans from fraud, theft, and misuse by the officials in charge. In the event a person suffers harm as a result of such actions, they can make a claim against the fidelity bond and receive financial compensation.

Just like other surety bonds, ERISA bonds are a contract between three parties:

• The principal - the person or body that needs to get bonded, in this case, the official or organization managing the retirement plan
• The obligee – the body that sets the bonding requirements, in this case, The U.S. Department of Labor
• The surety company - the third party that provides the bond.

Fiduciary liability insurance is different to an ERISA fidelity bond. According to the U.S. Department of Labor, while the ERISA bond covers the plan, a fiduciary liability insurance policy covers the fiduciary.

Who Needs an ERISA Bond?

Any individual who manages funds, property, or other assets in employee benefit plans, including pensions, has to obtain an ERISA fidelity bond.

Typically, plan trustees, plan sponsors, plan employees and employees of the plan sponsor are the types of fiduciaries who need to get bonded. The rule was set in the Employee Retirement Income Security Act of 1974.

If your responsibilities include any of the following, you’ll likely require an ERISA bond:

• Negotiating or transferring retirement plan funds
• Physical contact with cash, documents, or other physical assets of a retirement plan
• Disbursement of plan funds to beneficiaries
• Signing checks or other negotiable instruments of a retirement plan
• Supervising or having control over any of the above

SEC-registered dealers, and brokers who already have a fidelity bond within another authority’s jurisdiction, are exempt from the ERISA bonding requirement. The same exemptions may apply to some financial institutions and insurance companies.

How Much Does an ERISA Bond Cost?

The surety bond cost, or bond premium, that you’ll have to pay depends on the bond amount that’s required. The premium you pay will be a fraction of the total bond amount. You’ll need to pay this fee annually to maintain your surety bond.

Typically, the bond amount is 10% of the funds that an official handles. This applies to plans that have qualifying assets such as funds in bank accounts, mutual funds, products and insurance policies, or other qualifying assets, and up to 5% of non-qualifying assets.

Non-qualifying assets include real estate property, high quality art and precious collectibles. If a plan has more than 5% of such assets, the bond should be either 10% of the value of all plan assets, or the full value of the non-qualifying assets, whichever is greater.

The required bond may be between $1,000 and $500,000. If a plan includes employer-sponsored securities, the bond amount maximum is set to $1,000,000.

When you apply for a bond, your surety examines your personal and business finances. That’s how it assesses the level of risk involved in bonding you. The most important factors it considers are your credit score, business documents, assets and liquidity. You can expect a lower bond price if your finances are in good shape. If you have a lower credit score and outstanding payments, your bond cost will be higher.

Is Bad Credit Bonding Possible?

You may be able to obtain an ERISA bond even with problematic finances. However, the rates for bad credit bonding are usually higher to compensate for the increased risk involved. Our bad credit program may be able to help you to meet your fidelity bonding requirements, even if you have a poor credit history.

How Do I Get Bonded?

Any principal who needs an ERISA bond must apply to an approved surety. The Department of the Treasury holds a listing of approved sureties.

If you require bonding, you’ll be pleased to hear that getting an ERISA bond is simple and straightforward. In fact, there are just two steps involved:

1. Download the application form
2. Fill it out and send it to [email protected] or fax it to (267)-362-4817

Want to learn more about the bonding process? You can consult our How to Get Bonded page.

Questions about Fidelity Bonds