Fidelity Bonds for your Retirement Plan

Under Department of Labor (DOL) regulations, your retirement plan will need to maintain an ERISA Fidelity Bond. A fidelity bond protects the assets in the plan from misuse or misappropriation by the plan fiduciaries. Plan fiduciaries include the plan trustees and any person who has control over the management of the plan and its assets.

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Required ERISA Fidelity Bond Amount

At the very least, the bond must equal to 10% of the value of the total plan assets, with a minimum bond value of $1,000 and a maximum bond value of $500,000. For the first year, the bond amount will be based on the estimated amount of assets that will be handled by the plan for the year. If you have non-qualifying assets as described below, the required bond amount may be higher.

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Plan assets that “qualify” for a 10% bond include employer securities; participant loans; assets held by financial institutions such as banks, insurance companies, broker-dealers, or other organization authorized to hold IRA assets; mutual funds; investment and annuity contracts issued by an insurance company; and self-directed individual account plans in which the participant gets a statement of assets at least once a year.

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All other assets are considered non-qualifying plan assets. However, if more than 5% of the plan assets are in limited partnerships, artwork, collectibles, mortgages, real estate or securities of “closely-held” companies and are held outside of regulated institutions such as a bank; an insurance company a registered broker dealer or other organization authorized to act as a trustee for individual retirement accounts under the Internal Revenue Code §408, the plan sponsors need to do one of two things – 1) make certain that the bond amount is equal to 100% of the value of these “non-qualified” assets or 2) arrange for an annual full-scope audit, where the CPA physically confirms the existence of the assets at the start and end of the plan year.

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Why Do I Need an ERISA Fidelity Bond?

There are serious consequences for not purchasing and maintaining a sufficient ERISA fidelity bond. Not having this required coverage can be a red flag to the DOL that they need to take a closer look at the plan. You are not only at risk for a DOL audit, but there are citations associated with not having this required coverage.

 

How to get an ERISA Fidelity Bond

Colonial Surety Company is a trusted source of fidelity and surety bonds for over 70 years. Colonial Surety is United States Treasury approved, rated Excellent by A.M. Best Company, and enjoys positive reviews of its exceptional financial history, service and support systems.

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You can easily obtain an ERISA Fidelity Bond for your plan on Colonial Surety’s secure website

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If you prefer, you can call Colonial Surety Company at 888-383-3313 and a fidelity bond consultant will assist you with the bond application. To ensure that we get proper reporting, please be sure you give them our referral code of MA0221.

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When obtaining your bond, be certain that you are purchasing an ERISA Fidelity Bond, and NOT an employee dishonesty bond. This bond does not fulfill DOL requirements for ERISA compliance. Additionally, the bond should be in the name of the plan, not in the name of a person. Please be sure to provide a copy of the fidelity bond once obtained.