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Understanding ERISA bonds

On Behalf of | Jan 25, 2022 | Uncategorized |

ERISA fidelity bonds are a form of insurance designed to protect your plan against losses that would result from acts of dishonesty or fraud. In Pennsylvania, it is a vital part of retirement planning, implementing rules and frameworks that support and govern employer-sponsored plans.

Requirements of ERISA bond coverage

Any individual who handles elements of an employee benefits package needs bonding. ERISA refers to these individuals as “plan officials.” These persons have:

  • Direct physical contact with checks, cash and other financial properties
  • Ability to sign negotiable instruments like checks
  • Power to transfer funds
  • Authority to direct disbursement
  • Authority to negotiate plan property, such as titles, mortgages, securities, etc.
  • Decision-making authority over actions that require bonding

Coverage requirements

Bonding must cover at least 10% of the amount of the plan, and coverage must at least be $1,000. The max amount for any plan official is $500,000.

What ERISA bonds cover

The bonding is to cover losses that result from fraud or dishonesty by persons handling the plan. This includes but is not limited to:

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

Parties to ERISA bonds

A surety company is typically the entity providing the bond. The insured are those who handle funds or other property within the plan. Authorized parties obtain bonds from a surety or reinsurer listed on the Department of the Treasury’s Listing of Approved Sureties.

ERISA funds and property

“Funds or other property” refers to any component used for paying benefits to plan beneficiaries or participants. These funds could entail:

  • Mortgages
  • Securities in corporations
  • Land and building investments
  • Cash and checks

The purpose of the bond is to ensure that all elements of the plan are properly distributed to plan beneficiaries and participants. ERISA coverage is then protected.

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