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
- ERISA fidelity bonds must be placed with a surety or reinsurer that is named on the Department of the Treasury's Listing of Approved Sureties in Department Circular 570 Under certain conditions, bonds may also be placed with the Underwriters at Lloyds of London (29 C.F.R. §2580.412-25, §2580.412.26). See DOL Field Assistance Bulletin 2008-04 for guidance regarding ERISA fidelity bonding requirements.
- 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.