The Lowdown on ERISA Bonds

You may have heard of ERISA bonds before.  You very likely have heard of 401(k) plans.  But did you know the two are connected?  I have found that, even in the insurance business, there is a lot of uncertainty as to what ERISA bonds do, how they work, and why they are required.

ERISA is an acronym for the Employee Retirement Income Security Act of 1974, which was enacted into federal law to set minimum standards for retirement and health plans and to provide protection for individuals enrolled in the plans.  ERISA bonds are fidelity bonds that act as employee dishonesty insurance protecting employee benefit plans, or 401(k) plans.

The bonds were created as insurance for losses caused by theft, fraud, or dishonesty against 401(k) plans from administrators who are responsible for day-to-day handling of the plans.  An employer will purchase an ERISA bond, which is regulated and monitored by the government, for the protection of employee assets in their 401(k) plan.

Most, but not all, 401(k) plans are required to have an ERISA bond.  If you are a sole proprietor or spouse, or if you have a 401(k) plan sponsored by a church or governmental entity, you would not have a plan that is subject to the federal law.

ERISA bonds are typically in force for 1-3 years at a time, and they are set to cover at least 10% of the funds in the 401(k) plans.  Most often, bonds that run for multiple years automatically fluctuate with the 401(k) plans they cover with an “inflation guard”.  This allows the bonds to have coverage in place to satisfy the ERISA requirements, and the employer can in essence, set it and forget it.

The good news is, because ERISA bonds are required by the government, they are relatively easy to procure and are affordable!  They can even be funded by the 401(k) plan or plan sponsor, depending on the plan’s specifications.  VAST works with many insurance carriers who supply ERISA bonds.  To inquire about an ERISA bond for your business or for any business insurance inquiries, contact your agent today.

References:

https://www.dol.gov/general/topic/retirement/erisa

Clarke, Richard G. “Executive Liability Risks.” Resources: The National Alliance for Insurance Education & Research Winter 2019: 18-21. Print.

https://www.employeefiduciary.com/blog/401k-fidelity-bonds-frequently-asked-questions