PenSys ERISA Bond Information

ERISA Fidelity Bond Requirement

     Under Department of Labor regulations, qualified retirement plans must be covered by a fidelity bond (plans covering only owners and their spouses are exempt from these bonding requirements). A fidelity bond protects the assets in the plan from misuse or misappropriation by the plan fiduciaries. At the very least, the bond must equal 10% of the value of the total plan assets, with a minimum bond value of $1,000. 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.

      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. 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 trustee for individual retirement accounts under 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.

      There are serious consequences for not purchasing and maintaining a sufficient ERISA fidelity bond. For one thing, it can be a red flag to the DOL that they need to take a closer look at the plan. In addition, in cases where a plan has more than 5% in non-qualified assets, a serious underwriting risk may arise if the non-qualified assets are not properly listed on the bond application. This is because non-qualifying assets carry a higher level of risk for loss. If the non-qualified assets are not listed on the bond, the underwriter would have cause to deny coverage if there was a loss due to misuse or misappropriation by a plan fiduciary. Under those circumstances, the loss may be denied and the trustees could be liable for the losses to the plan.

How to get an ERISA fidelity bond

The Department of Labor (“DOL”) requires that an ERISA fidelity bond be placed with a surety or reinsurer that is named on the Department of Treasury’s Listing of Approved Sureties, Department Circular 570 (http://www.fms.treas.gov/c570/). 

Please contact your general insurance agent to purchase an ERISA fidelity bond for your plan.  Or you may contact Colonial Surety Company, one of the surety companies listed on the Listing of Approved Sureties of the Department of Treasury, via its secure website at www.colonialsurety.com or by calling 1-800-221-3662.    

When purchasing your bond, be certain that you are buying an ERISA Fidelity Bond, not an employee dishonesty bond or a fiduciary bond.  These other bonds do not meet the DOL’s statutory bonding requirements.

We take the growth and safety of your retirement plan assets very seriously.  We look forward to the opportunity to serve your retirement needs and those of your employees.