One of ERISA’s requirements is that people who handle plan funds and other property must be covered by a fidelity bond to protect the plan from losses due to fraud or dishonesty. This publication highlights key elements that employers and other plan sponsors should know about ERISA’s fidelity bonding requirements.
The law provides that any person who “handles” union funds or property must be bonded for at least 10% of the funds handled during the union’s preceding fiscal year up to a maximum of $500,000.
To qualify for a fidelity bond, the job seeker or employee must meet all of the following criteria: Provide verifiable proof of authorization to work in the United States. Have a firm job offer or commitment of employment with a reasonable expectation of permanence. Not be commercially bondable.
The fidelity bond needs to cover all fiduciaries and anyone who has actual authority over plan assets. … If your plan is under the $500,000 maximum, be sure to review your plan’s coverage on an annual basis to determine if it meets ERISA coverage requirements.
Are all 401(k) plans required to have a bond? No. Solo 401(k) plans are not subject to the fidelity bond requirement. Neither are retirement plans sponsored by churches or governmental entities.
An ERISA fidelity bond is a type of insurance that protects the plan against losses caused by acts of fraud or dishonesty. Fraud or dishonesty includes, but is not limited to, larceny, theft, embezzlement, forgery, misappropriation, wrongful abstraction, wrongful conversion, willful misapplication, and other acts.
Bookkeepers are frequently required to be bonded, either by their employer or to build trust with their customers. These are surety bonds and are provided by an insurance company as a guarantee of compensation in the event of dishonesty or malfeasance on the part of the bookkeeper.
Understanding Fidelity Bonds
If a company has employees that commit fraudulent acts, the company itself may be exposed to legal or financial penalty in addition to the individual employee or employees who committed the act. … Although they are called “bonds,” fidelity bonds are actually a form of insurance policy.
An ERISA bond covers employees who manage or have fiduciary responsibility for the company’s retirement fund. A fidelity bond covers employees who may not be able to receive a bond due to concerns with their personal background or employment history.
There are two types of fidelity bonds: first-party and third-party. First-party fidelity bonds protect businesses against intentionally wrongful acts (fraud, theft, forgery, etc.) committed by employees of that business.
The following plans are exempt from ERISA’s fidelity bond requirement: Church plans and government plans. Plans that are completely unfunded (that is, benefits are paid from an employer’s general assets) Section 125 cafeteria plans.
A fidelity bond is required as soon as you start your 401(k) plan. ERISA requires every person who handles funds or other property for an employee benefit plan, including 401(k) plans, to be bonded.
While fidelity bonds protect against very specific employee-related crimes, a commercial crime insurance policy can be put together to offer your business more complete and diverse coverage against criminal activities that could cost your business money.
With limited exceptions, all qualified plans (i.e. 401(k) plans, profit sharing plans, ESOPs, certain 403(b) plans, etc.) are required by law to be covered by a fidelity bond.
Persons who manage the 403(b) plan and their employees must carry a fidelity bond equal to 10 percent of the market value of the assets that they manage, with a minimum requirement of a $1,000 bond and a maximum requirement of $500,000 in surety, per Section 412 of the ERISA.
For this purpose, SEP and SIMPLE IRA plans are considered employee benefit plans. … Consequently, the employees of qualified financial institutions that hold SEP IRA and SIMPLE IRA plan assets need not be covered by an ERISA fidelity bond.
A Fidelity Bond is an insurance policy that protects companies against financial loss due to employee fraud and theft. Fidelity Bonds are also called Employee Dishonesty Bonds or Business Service Bonds, though these are technically different types of Fidelity Bonds.
Types of Fidelity Bonds
First-party bonds are the type described above and the most common. They protect companies from employees or clients/customers who intentionally commit deceitful and/or harmful acts that hurt the business and its assets.
The three major categories of fidelity bonds are business services bonds, employee dishonesty bonds, and ERISA bonds. Business services bonds are needed if you have employees providing services on the premises of customers. Employee dishonesty bonds protect your business from the consequences of employee misconduct.
Being bonded helps create trust between your business and your clients because you are giving them assurances that they will be financially protected from losses they may suffer if you don’t fulfill your contractual obligations to them completely.
The State of California Franchise Tax Board states that you must register as a tax preparer and secure a bond if you, for a fee, assist with or prepare State and/or Federal income tax returns. You are exempt from getting this license (and therefore the bond) if: You are a California Public Accountant (CPA)
A Commercial Crime Fidelity Bond on the other hand (also known as a Dishonesty Bond) is designed to protect your business from any fraud or embezzlement committed by employees that directly handle money like cashiers, bookkeepers, or other administrators entrusted with handling company finances.
How to Buy Individual Bonds. Investors can buy individual bonds through a broker or directly from an issuing government entity.
ERISA bond amounts ranging from $10,000 to $500,000, however, are instant purchase. No matter what amount of bond coverage you need, the process can be done completely online through SuretyBonds.com. The cost of an ERISA Bond is a small percentage of the total bond amount.
E&O or D&O insurance is not the same as a fidelity bond. Moreover, those E&O and D&O policies do not provide personal protection to the ERISA fiduciary as fiduciary insurance would.
ERISA fidelity bonds protect the benefit plan participants from loss due to fraud or dishonesty. … Fiduciary liability insurance protects the company from legal liability arising from the sponsorship of a plan. If the company is held liable, the policy will pay the defense costs and judgements against the company.
Employee Retirement Income Security Act (ERISA) bond coverage is often added to a crime policy subject to a zero retention in order to comply with ERISA bonding requirements.
The requirement to obtain a bond is found in ERISA and the related regulations, so only plans that are covered by those rules must have a bond. This includes most qualified retirement plans such as 401(k) plans, profit sharing plans, defined benefit plans, and some 403(b) plans.
Without a Fidelity Bond in place, the Plan would be out of compliance with ERISA. Also, the Plan named fiduciary/trustee could be held personally liable for any losses that occur. … Note: The Plan’s named fiduciary/trustee could be held personally liable for any losses that occur.
Fidelity Insurance protects businesses from costs incurred as a result of forgery, defalcation, embezzlement and other fraudulent acts by employees.
When a potential employer asks if you have been refused a bond, it is usually referring to fidelity bonds. These bonds are a type of insurance that protects employers from losses due to employee dishonesty. … While being denied a bond is not good, it does not disqualify you from employment.
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