ERISA Bonds Explained
An ERISA bond is required from individuals and entities in charge of managing employee retirement plans. It is a type of fidelity bond that is required by the Employee Retirement Income Security Act (ERISA).
The bond protects the beneficiaries of employee plans from fraud, theft, and misuse on the side of the officials that are handling them. In case a person suffers harms as a result of such actions, they can make a claim against the bond to receive a financial compensation.
Just like other surety bonds, ERISA bonds are a contract between three parties. You, as the entity that needs the bond are the principal. The U.S. Department of Labor requires the bond and thus is the obligee. The surety is the third party that provides the bond.
Questions about Fidelity Bonds
Who has to obtain this 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 ERISA Act of 1974.
SEC-registered dealers and brokers who already have a fidelity bond within another authority’s jurisdiction are exempt from the ERISA bond requirement. The same exemption may apply to some financial institutions and insurance companies.
How much does an ERISA bond cost?
The surety bond cost that you will have to cover depends on the bonding amount required of you. You have to pay only a bond premium, which is a small percentage of this amount.
Typically, the bond amount is 10% of the funds that an official handles. This applies for plans that have only qualifying assets such as funds in bank accounts, mutual funds, products and insurance policies, or 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 can assess the level of risk involved in the bonding. The most important factors it considers are your credit score, business documents, and 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 with problematic finances. The rates for bad credit bonding are usually higher to compensate for the increased risk.
How do I get bonded?
Here are the steps to getting an ERISA bond:
- Download the application form
- 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.
Need help with your application? Just call us at (877) 514-5146, and our bonding experts will be happy to assist you.
What happens in case of a claim?
The purpose of the ERISA bond is to protect beneficiaries of employment benefit plans. It safeguards them against any losses in case plan officials engage in fraudulent activities. If a party is harmed as a result of such actions, they can make a bond claim.
Some instances that can lead to claims include theft, forgery, misappropriation, and embezzlement. If the case is proven, you have to provide a financial compensation to the claimants. The reimbursement can be up to the penal sum of your bond. This means that bond claims are a serious financial threat, and should be avoided as much as possible.
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