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Case of the Week: Obtaining ERISA Fidelity Bonds

The ERISA consultants at the Columbia Management Retirement Learning Center Resource Desk regularly receive calls from financial advisors on a broad array of technical topics related to IRAs and qualified retirement plans. A recent call with a financial advisor in New York is representative of a common question relating to the ERISA fidelity bonding requirement. The advisor asked: 

“From what entities can a sponsor of a qualified retirement plan obtain an ERISA fidelity bond?” 

Highlights of Discussion 

  • Section 412 of ERISA and related regulations (29 C.F.R. §2550.412-1 and 29 C.F.R. Part 2580) generally require that every fiduciary of an employee benefit plan and every person who handles funds or other property of such a plan shall be bonded.
  • Neither the plan nor a party-in-interest with respect to the plan may have any control or significant financial interest, whether direct or indirect, in the surety, or reinsurer, or in an agent or broker through which the bond is obtained (ERISA §412(c); 29 C.F.R. §2580.412-22 and §§2580.412-33 to 2580.412.36). 

  • If a surety becomes insolvent, is placed in receivership, or has its authority to act as an acceptable surety revoked, the administrator of any plan insured by the surety is responsible, upon learning of such facts, for securing a new bond with an acceptable surety (29 C.F.R. §2580.412-21(b)).

Conclusion

ERISA’s bonding requirements are intended to protect employee benefit plans from risk of loss due to fraud or dishonesty on the part of persons who handle plan funds or other property. Such bonds may only be placed with a surety or reinsurer approved by the Treasury Department.

The Columbia Management Retirement Learning Center Resource Desk is staffed by the Retirement Learning Center, LLC, a third-party industry consultant that is not affiliated with Columbia Management. For informational purposes only. Please consult a tax advisor or attorney for specific tax or legal needs. © 2014 Columbia Management Investment Advisers, LLC. Used with permission.

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