Issue New Guidance on Fidelity Bonds, Says ERISA Advisory Council

The ERISA Advisory Council has recommended that the Department of Labor (DOL) issue new guidance on ERISA bonding. The recommendation comes in a report to Secretary of Labor Alexander Acosta that includes the council’s evaluation of the DOL’s regulations and guidance on ERISA bonding requirements.

The council looked at covered losses, persons covered, the adequacy of bond amounts, coverage of participant contributions and the need for additional education and guidance. It also heard testimony from witnesses on those matters.


According to the witnesses, the emergence of social engineering and cybercrime is heightening the potential for losses to plan participants. But there was some good news: Witnesses did not identify acts of fraud or dishonesty covered by fidelity bonds as a reason for the increasing risk plan participants face of suffering losses.

Additional education for plan officials, plan sponsors and plan service providers would be helpful, according to witnesses.They testified that there is a market for providing third-party bonding coverage, but there is confusion about coverage of third-party service providers, and plan officials are not always knowledgeable about it. Witnesses also said that the bonding requirements of ERISA Section 412 “are not well understood, especially by small plan sponsors and there service providers,” according to the council’s report.

The council says it did not receive any testimony or research that indicated harm to plan participants due to the lack of a bond or an inadequate bond amount. The report noted that this may reflect the availability of other insurance products, and adds that this may include fidelity bonds but also may not, since it says such coverage “frequently is not reported as a separate category.”

Council Observations

The council said that fidelity bonds “appear to be widely available, easily obtainable and relatively inexpensive” and that “the market is assumed to be efficiently providing coverage.”

Regarding losses, the council found:

  • no specific evidence that the language in fidelity bonds resulted in losses being left uncovered;
  • no specific evidence of widespread uncovered fidelity losses due to losses exceeding the required fidelity bond limit; and
  • evidence indicating small employee benefit plans were the source of most reported losses.

The council said that confusion and lack of awareness of fidelity bond requirements appear to be “significant factors behind losses” and that the language mismatch between the temporary regulations and ERISA appears to be one factor that contributes to confusion.

Guidance Suggested

The council suggested that the DOL issue guidance directed at plan administrators, sponsors and service providers, including a new interpretive bulletin and a summary of the requirements for securing a fidelity bond that complies with the DOL’s guidance.

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