The Importance of Fidelity Bond Coverage in Your Retirement Plan

Securing fidelity bond coverage as part of your retirement plan is a step in the right direction toward safeguarding your business from mishandled funds, mismanagement, and abuse. Further, it is a U.S. Department of Labor requirement for “private sector employee benefit plans…that invest and manage their assets.”

What is a fidelity bond and why is it an important part of your retirement plan?

A fidelity bond is a type of insurance that covers losses incurred by employee benefit plans, which include retirement plans, from theft or fraud. Specifically, the Employee Retirement Income Security Act (ERISA) requires fiduciaries of employee benefit plans to have coverage to protect the plans from risk of loss due to fraud or dishonesty on the part of persons handling plan funds. Fiduciaries include investment managers, investment advisors, and plan trustees. Criminal acts include larceny, theft, embezzlement, and forgery.

Failing to have or maintain a fidelity bond is a violation of ERISA, and therefore may result in serious consequences, and also may trigger closer inspection by the Department of Labor. Note that certain employee benefit plans are excluded from the fidelity bond requirement, such as plans that are unfunded, church plans, and governmental plans. The Annual Return/Report of Employee Benefit Plan (Form 5500) inquires as to the existence of fidelity bond coverage as well as the amount of coverage. In addition, most Forms 5500 include a paragraph explaining the necessity of increasing a plan’s fidelity bond coverage.

Below are the requirements for fidelity bond coverage:

  • Must cover at least 10% of the plan assets (minimum amount of $1,000; maximum amount of $500,000)
  • Cannot have a deductible
  • Must be in the name of the retirement plan or trust
  • Must be fixed annually
  • Must be placed with Department-of-Treasury-approved surety
  • Must cover criminal losses

If you have any questions or concerns regarding your retirement plan fidelity bond coverage, or would like to request a speaker on this topic for your organization or event, contact one of our PYA executives below at (800) 270-9629.

 


Engel Gesite

Engel Gesite

Senior Manager

Greg Gates

Greg Gates

Principal

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