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A Fiduciary Bond, commonly called an ERISA bond, is a specialized type of Fidelity Bond that provides coverage for pension plans or other employee benefit plans.
ERISA bonds provide coverage for the plan and its beneficiaries in the event of fraud, impropriety, or dishonesty on the part of the fiduciary or administrator covered by the bond.
What Does a Fiduciary Bond Cover?
What is Fiduciary Liability insurance?
Fiduciary Liability insurance is similar to a bond, but it is not required by law. Because the risk of dealing with money is extreme, it is a critical coverage to have if you have assumed any kind of fiduciary liability. This is the case whether it is for an ERISA plan, or for an elderly individual.
I manage my company's retirement plan. Do I need Fiduciary Bond Insurance by law?
The Employee Retirement Income Security Act of 1974 (ERISA) introduced a new set of rules for fiduciaries as a safeguard for employee retirement plans and plan beneficiaries.
Management or key personnel who oversee or have a fiduciary responsibility to the company’s retirement fund or plan are now required to have an ERISA bond.
Federal law requires employees who have administrative access to the the fund to have a fiduciary bond, an ERISA bond specifically, which provides a minimum level of protection for the plan and its beneficiaries, the employees.
Some companies choose a higher amount of coverage than required by law and funds invested in certain types of assets have special coverage requirements.
Who needs Fiduciary Bond Insurance?
Individuals and companies who need Fiduciary Bond Insurance typically include:
According to Department of Labor rules, every person who handles funds or other property of a benefit plan for employees must be bonded — unless that person falls under an exemption for ERISA. Handling employee benefit funds without bonding is illegal.
What Are the "Limits" on a Fiduciary Bond?
Fiduciary Bond Insurance or ERISA bonds are required by law. The amount of the bonding, therefore, is also set by federal law. According to ERISA, “A plan official must be bonded for at least 10 percent of the amount of funds he or she handles, subject to a minimum bond amount of $1,000 per plan with respect to which the plan official has handling functions.”
This typically means that individuals have a required bond amount of $500,000 per plan.
Starting in 2008, however, federal law changed so that plan officials (typically the company administering the plan) now need to carry a minimum of $1,000,000 in coverage. Of course, individuals and businesses may choose to carry additional coverage if they wish.
A plan with more than 5% of its holdings in certain types of investments, such as real estate or limited partnerships, are required to carry a bond that covers 100% of the plan assets.
Unlike many other types of insurance, an ERISA bond is not subject to a deductible, with the goal of providing protection for the plan from the first penny of loss.
Is Fiduciary Liability the same as ERISA bond?
While similar, Fiduciary Liability insurance is not exactly the same as an ERISA bond.
Fiduciary Liability can cover more than just the liability associated with managing an ERISA plan, while the bond is only for that exposure.
Additionally, an ERISA bond is required by law while a Fiduciary Liability insurance policy is not.
Who Is Covered by Fiduciary Bond Insurance?
Beneficiary or Creditor While you will be purchasing and carrying the fiduciary bond, it actually covers the beneficiary or creditor by guaranteeing that you, the fiduciary, will act responsibly and honest with the assets of others that you are entrusted with.__You__ There will be times where you are required to get this type of bond and the good news is that it only costs a fraction of the actual bond amount, so looking at this way it protects you as well.
How Much Does a Fiduciary Bond Cost?
ERISA bond insurance typically is priced based on the amount of assets controlled by a plan and the perceived risk by the insurance company. Typically, these bonds cost $200-$1,000 a year for policyholders.