Basic Facts to Know About Erisa Bonds
According to The Employee Retirement Security Act of 1974 (ERISA), there must be a bond between the fiduciary of the benefit plan of an employee and the person by whom the funds of the plan are being handled. This is to ensure that the benefit plans won’t face any loss due to any dishonesty or fraud committed by the person by whom the assets of the plan are being held.
To keep the transparency, this requirement is constantly monitored and whether the retirement plan has been covered with fidelity including ESOPs, the coverage amount of that particular plan-details like these must be reported annually by the sponsors of the plan on the IRS form 5500. During the investigation and audits of the plan, ERISA bonds are reviewed well. There are no specific penalties mentioned for the failure of meeting the requirement of the bond.
Here are few facts which we must know about ERISA bonds, they are as followed.
• Coverage of the bond:-At the beginning of every plan year, the amount must of the ERISA bond has to be fixed and that should not be less than the ten percent of the whole amount of the fund which is being handled.
• The Party of Insurance:-There is always a surety company which provides the bond as an insured entity. All the details of the plan must be mentioned in the ERISA bond so that the proper coverage is ensured.
• Covered Losses:-The type of losses covered should not be limited to theft, larceny, forgery, wrongful abstraction, misappropriation, embezzlement, willful misapplication or wrongful conversation in the fidelity.
• Deductibles:-The bonds should not have deductibles or features similar to that to ensure the bond gives coverage to the loss of every penny invested according to the plan.
• A form of the Bond:-There are several kinds of bond forms available such as- name schedule, position schedule, individual and blanket.
• No Fiduciary Liability Insurance:-Fiduciary liability Insurance do not meet the requirement of the ERISA bond. Just against the losses due to the fraud or dishonesty of the handler of the insurance, a plan is insured by the fidelity bonds.
Apart from all these, there are other things as well about these bonds which we need to know including- the list of surety companies which are permissible, about the multiple plans available, the ‘omnibus’ clause and the term of the bond you have selected.