ERISA Bond: Fidelity Bonds for Employee Benefit Plans

An ERISA fidelity bond is a type of insurance required under the Employee Retirement Income Security Act (ERISA) that protects employee benefit plans from losses due to fraud or dishonesty by plan officials who handle plan funds or property. It covers acts like theft, embezzlement, forgery, and other fraudulent conduct by plan fiduciaries, trustees, administrators, and employees who handle plan assets.

Federal law requires ERISA fidelity bonds for anyone who handles funds or property of an employee benefit plan, including 401(k) plans, pension plans, health and welfare plans, and profit-sharing plans. This includes plan trustees, administrators, officers, and employees who have physical contact with plan funds or the power to transfer or negotiate plan assets. Some plans are exempt, such as unfunded plans that pay benefits only from the employer's general assets (see DOL Field Assistance Bulletin 2008-04).

ERISA requires bond coverage of at least 10% of the amount of funds handled during the preceding reporting year, with a minimum of $1,000 and a maximum of $500,000 per plan official. For plans holding employer securities, the maximum increases to $1,000,000. The Department of Labor enforces these requirements, and plans must review and adjust coverage annually based on funds handled.

ERISA fidelity bond costs typically range from $100 to $2,000 annually depending on the coverage amount. A $50,000 bond might cost $100-$200 per year, while a $500,000 bond might cost $500-$1,500 annually. Pricing is based on coverage amount, number of covered individuals, and loss history, and is set by the issuing carrier. Use our ERISA bond calculator for a personalized estimate.

ERISA Section 412 makes it unlawful for a plan official to handle plan funds or property without being bonded as required, and a fiduciary who allows unbonded handling may be personally liable for resulting plan losses. Plans report whether they carried a fidelity bond on the annual Form 5500, and the Department of Labor reviews bonding in plan investigations. The Department of Labor's Field Assistance Bulletin 2008-04 explains the rules in detail. Maintaining proper bonding is both a legal requirement and a fiduciary duty.

No. An ERISA fidelity bond and fiduciary liability insurance serve different purposes. The ERISA fidelity bond is a federally mandated surety product that protects the plan against fraud and dishonesty by plan officials. Fiduciary liability insurance is a voluntary policy that protects plan fiduciaries from personal liability for breaches of fiduciary duty such as imprudent investment decisions. Most plan sponsors should carry both, but only the fidelity bond is required by federal law.