Despite being called bonds, fidelity bonds are more akin to insurance policies. They protect policyholders against losses incurred as the result of fraudulent or dishonest acts by trusted parties.
Under the Employee Retirement Income Security Act of 1974 (ERISA), any fiduciary, officer, employee, or service provider who handles plan assets of an employee benefit plan must be bonded. Bonds must be placed with a surety company listed as approved by the Department of Treasury and may be paid for out of plan assets.
Any fiduciary, officer, employee, or service provider who handles plan assets must be bonded. In this context, "handle" can mean:
It should be noted that ERISA does not require all fiduciaries to be bonded – only those who handle plan assets. For example, a financial advisor owes plan participants a fiduciary duty, but need not be bonded if he only advises and doesn’t handle plan assets.
Fidelity bonds protect against losses resulting from fraud or dishonesty. This covers:
The covered party must be bonded for at least 10% of the plan assets handled with a minimum bond amount of $1,000 per plan. The maximum bond amount that can be required under ERISA with respect to a single official is $500,000 per plan. The maximum increases to $1,000,000 when the plan holds employer securities.
Fiduciary liability insurance insures the employee benefit plan against losses caused by breaches of fiduciary responsibility, whereas fidelity bonds cover losses caused by fraud or dishonesty. ERISA does not require fiduciary liability insurance.
ERISA provides some limited exemptions to its bonding requirement:
ERISA is a fairly complex statute that places many requirements on employee benefit plans. An experienced employment lawyer can help determine whether your employee benefit plan is subject to ERISA bonding requirements, who must be bonded, and for how much.
Last Modified: 07-16-2014 04:45 PM PDTLaw Library Disclaimer
We've helped more than 4 million clients find the right lawyer – for free. Present your case online in minutes. LegalMatch matches you to pre-screened lawyers in your city or county based on the specifics of your case. Within 24 hours experienced local lawyers review it and evaluate if you have a solid case. If so, attorneys respond with an offer to represent you that includes a full attorney profile with details on their fee structure, background, and ratings by other LegalMatch users so you can decide if they're the right lawyer for you.