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ERISA Fidelity Bonding Requirement

Under ERISA, every fiduciary of each plan (except as provided below) must be bonded against fraudulent transactions. The amount of the bond must be the greater of 10% of the assets or $1,000. However, the bond does not need to exceed $500,000. Separate bonds are not required of each fiduciary; a single bond can cover all the fiduciaries. Also, it is permissible to cover separate plans under a single bond provided that each plan has the same fiduciaries and that the amount of the bond equals the sum required of each plan, although the amount of the bond does not need to exceed $500,000.

The exception for bonding requirement is for plans that only cover the owner (or the owner and the owner's spouse), and for partnership plans that only cover the partners (or the partners and their spouses).

Separately, in order for small plans (under 100 participants) to claim a waiver of the auditor's report (line 4k of the Form 5500 Schedule I), the Department of Labor requires that three conditions must be met:

  1. If less than 95% of the trust assets are invested in "qualifying plan assets", then the fiduciaries must be bonded for the amount of non-qualifying plan assets. Examples of qualifying plan assets include assets held by a regulated financial institution (e.g., a bank or investment firm) and participant loans. (This condition may be met by the ERISA fiduciary bond.)

  2. The administrator must include additional information in the Summary Annual Report such as the names of the financial institution holding qualifying plan assets and the name of the surety company issuing the bond under the first condition if the non-qualifying assets exceed 5% of the total assets.

  3. In response to a request from any participant or beneficiary, the administrator must make available for examination (or furnish copies of) each regulated financial institution statement and evidence of any required bond at no expense to the participant or beneficiary.

For additional information, you can contact us at info@pensionbenefits.com or contact your surety company. You can click on www.colonialsurety.com to purchase an ERISA bond from Colonial Surety Company.

Fiduciary Liability Insurance

Fiduciary Liability Insurance protects plan sponsors and trustees from personal liability for defense costs and penalties if they are sued for fiduciary decisions.

Colonial Surety Company offers this coverage as an endorsement to its ERISA Fidelity Bond.

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