Surety Bonds 101: ERISA Surety Bonds

An ERISA bond (or ERISA fidelity bond) is a type of surety bond that protects employee benefit plan beneficiaries. Its purpose is to ensure that beneficiaries receive compensation for financial loss if the fiduciary commits fraud, including theft, embezzlement, misappropriation, wrongful conversion and abstraction, misappropriation, forgery, or willful misapplication.

A fiduciary is any person in a position of trust, whom serves the best interests of other parties, such as a Trustee of an employee benefit plan, 401(k) plan, or a pension fund. The Trustee is responsible for purchasing an ERISA bond for the benefit of the plan beneficiaries. The bond amount should be at least 10% of the total plan assets and cannot be less than $1000 nor more than $500,000.

It is mandatory for all plan officials (people who handle funds or plan assets) to obtain an ERISA bond. A person is considered a plan official if they have:

• Access to cash or checks
• The authority to transfer funds from the plan to themselves or a third party
• The power to make decisions about activities that require bonding
• The authority to sign checks or other financial instruments
• The authority to negotiate plan property, including buildings or securities, mortgages, and land title
• The power to direct disbursement

A fiduciary may be exempt from the requirement to obtain an ERISA bond if:

• They are a registered corporation
• Their combined capital and surplus is at least $100,000
• They have the authority to exercise trust powers or conduct insurance business

Underwriters usually do a credit check before issuing an ERISA bond. If you are a fiduciary, underwriters will seek the following information when determining your eligibility for an ERISA bond:

• Whether the plan includes any non-qualifying assets such as non-participant loans or real estate
• Is the plan structured under a Multiple Employer Plan or MEP
• The number of trustees included in the plan

ERISA bond coverage is crucial for businesses as they protect retirement accounts by guaranteeing that funds are available if the fiduciary commits fraud. If a claim is filed against a bond and the principal fails to reimburse the plans the bond covers, the surety must cover costs.

For example, if an employer commits fraud and steals from a 401(k) plan, the bond will cover losses, meaning the beneficiaries won’t lose money.

Though employers are only legally obligated to purchase an ERISA bond, many plan officials purchase fiduciary liability insurance that provides additional protection.

H.M. Vreeland is the leading surety bonding company in San Francisco. We have the expertise and experience required to handle diverse surety bonding needs. We have been meeting the bonding needs of businesses for more than 100 years. For more information, call us at (415) 566-3401.