You have a 401(k) plan to that you have been contributing your hard-earned money for years. Have you ever wondered, what if someone stole from my 401(k) plan? Is there anything out there to protect my plan against that? Meet the ERISA Fidelity Bond.
You do need an ERISA Fidelity Bond when you start a 401(k) plan. ERISA requires all the money handlers involved with the plan to be bonded. Meaning your plan is protected from fraud and dishonesty as soon as you start it.
Where Do You Get An ERISA Fidelity Bond?
Here is a list of certified service providers.
Do I need an ERISA Fidelity Bond for our Plan?
Yes. This policy is to protect the plan from loss due to acts of fraud or dishonesty. Both the IRS and Department of Labor investigators look for proof of coverage during plan audits.
What is ERISA?
ERISA stands for the Employee Retirement Income Security Act. It applies to all tax-qualified retirement plans, excluding government plans and companies with no employees (owner-only).
Who is covered?
The individuals “handling” plan funds are the ones being bonded. They may be listed by name, by a schedule, or under a blanket bond that covers all the officers and employees of the company.
Any person handling plan funds are those whose duties include activities that could lead to a loss of Plan assets through fraud or dishonesty. This would include Plan trustees and payroll processors. Financial institutions are generally covered by their own bonds and do not need to be covered by the Plan’s ERISA Fidelity bond.
How much must the bond be for?
The bond must be for at least 10% of the total plan assets with a minimum of $1,000 and a maximum of $500,000. The maximum increases to $1,000,000 for plans that include employer securities as an investment option.
In addition, you must have coverage for 100% of any investments that are not “qualifying plan assets.” Qualifying plan assets include mutual funds, investments held by a bank, an insurance company, or a registered broker-dealer, annuity contracts, and any investments over which participants have direct control of their accounts and received statements at least annually.
What if we don’t have a bond for the Plan?
ERISA bonds are inexpensive and easy to purchase. Contact your business insurance agent, your consultant at Hunter Benefits, or check on line for one of the many certified providers at:
ERISA requires this bond, and you are not in compliance with Department of Labor regulations until you have one. It can be a “red flag” on your Form 5500. If you don’t get one, the DOL may impose sanctions, and the IRS may require you to have the plan audited by a public accounting firm each year.
Fidelity Bonds are required for all plans subject to ERISA.
Fiduciary Liability Insurance
Fiduciary liability policies are to cover claims arising from allegations of breach of fiduciary duty, improper or imprudent investments, insufficient funding, errors or omissions. This coverage is generally excluded from Directors & Officers liability insurance.
Plan fiduciaries are considered directly responsible for the plan assets and can be held personally liable for losses to a benefit plan. Any officer or owner who makes decisions about the company’s employee benefit plans may be a fiduciary, even if they are not named as one.
Fiduciary liability insurance is not required by ERISA, but since personal assets are also at stake, it should be considered.
Want to start a 401(k) plan with us? Go here.