Why Do You Need To Obtain An ERISA Bond For Your Organization’s Benefit Plans?

First, Let’s Cover the Basics: What is ERISA?

The Employee Retirement Income Security Act of 1974 (ERISA) is a federal law that sets minimum standards for most pension and health plans that are voluntarily established in the private sector.  ERISA aims to protect the individuals taking part in these plans.  One way that the government provides protection for individuals is by mandating certain fiduciary responsibilities for those who manage and control plan assets.

What Fiduciary Responsibilities does ERISA mandate?

ERISA requires that those persons or entities who exercise discretionary control or authority over plan management or plan assets, such as plan trustees, plan administrators, and members of a plan’s investment committee run the plan solely in the interest of participants and beneficiaries and for the exclusive purpose of providing benefits and paying plan expenses.  Fiduciaries are expected to act prudently and to diversify the plan’s investments in order to minimize the risk of large losses.  Fiduciaries are also expected to ensure that plan terms are consistent with ERISA regulations.

What is an ERISA bond and what individuals must be covered under an ERISA bond? 

ERISA section 412 and related regulations (29 C.F.R. § 2550.412-1 and 29 C.F.R. Part 2580) generally require that every person who ‘handles’ funds or other property of such a plan be bonded.  ERISA’s bonding requirements are intended to protect employee benefit plans from risk of loss due to fraud or dishonesty on the part of persons who “handle” plan funds or other property.  ERISA refers to persons who “handle” funds or other property of an employee benefit plan as “plan officials.”

An ERISA bond is a surety bond, and as is the case with all surety bonds, there are three parties in an ERISA bond: an Obligee, a Principal, and a Surety Carrier.  In the case of an ERISA bond, the plan is the Obligee, the persons who “handle” funds or other property of the plan are the Principal, and the surety company, which is the party providing the bond, is the Surety Carrier.

A plan official must be bonded for at least 10% of the amount of funds he or she handles, subject to a minimum bond amount of $1000 per plan with respect to which the plan official has handling functions.  In most instances, the maximum bond amount that can be required under ERISA with respect to any one plan official is $500,000 per plan.  However, the maximum required bond amount is $1,000,000 for plan officials of plans that hold employer securities.

ERISA bonds can be written on an individual, name schedule, position schedule, and blanket bond form basis.  Call Unique Surety today to determine the best ERISA bond form for your organization.  We feature fast, efficient and same-day service for the procurement of ERISA bonds.