The ERISA Bond and You

31 May The ERISA Bond and You

The ERISA Fidelity Bond is to “…provide protection to the plan against loss because of acts of fraud or dishonesty on the part of the plan official, directly or through connivance with others.” There are a few 3(16) fiduciaries that, like TAG, have taken the stance where both the 3(16) AND the Plan Sponsor need to be covered by an ERISA Bond.  To give you some background, the Employee Retirement Income Security Act of 1974 requires that every person who handles ERISA plan assets be covered by a Fidelity Bond. The Fidelity Bonds basic purpose is to protect against theft of ERISA plan assets. The limits on these bonds are 10% of plan assets, capped at a maximum payout of $500,000. It is crystal clear that a Plan Sponsor is required to have this Bond. If the employer chooses to outsource to a 3(16) Plan Administrator, does this trigger the need for a second Bond? Does the Plan Administrator have the authority to direct money and make decisions on your client’s plan? Yes, indeed.

The 3(16) needs to be bonded as well, for each company. As with fiduciary insurance, there is a very small population of people that know how to do this—but there are some great programs out there. NAPLIA runs a program wherein a 3(16) like TAG can offer an ‘umbrella’ bond solution that covers both the 3(16) and the Plan Sponsor; this is what we do. Again, ask the questions so that you know this basic risk is covered—by all parties!

For more on ERISA Fidelity Bonds, read this article from NAPA: 5 Things People Get Wrong About ERISA Fidelity Bonds
and this article to learn about the differences between ERISA Bonds and Fiduciary Liability Insurance