Under Department of Labor (DOL) regulations, most retirement plans need to maintain a fidelity or surety bond. A fidelity bond protects the assets in the plan from misuse or misappropriation by the plan fiduciaries. Plan fiduciaries include the plan trustees and any person who has control over the management of the plan and its assets. NOTE: Owner-only plans aren’t subject to bonding requirements and don’t need to purchase a bond. If a non-spouse employee is hired, then the bonding requirements must be met.
1. Why does my retirement plan need a fidelity bond?
The purpose of the bond is to ensure protection of the retirement plan and its participants against any acts of fraud, dishonesty, or mishandling of plan funds by the plan fiduciaries.
2. How much coverage do I need?
At the very least, the bond must be equal to 10% of the value of the total plan assets, with a minimum bond value of $1,000 and a maximum bond value of $500,000 ($1,000,000 for plans that hold employer securities). For the first year, the bond amount will be based on the estimated amount of assets that will be handled by the plan for the year.
If you have non-qualifying assets of more than 5% of the total plan assets, the bond amount needs to be at least equal to 100% of these assets. Please contact your FuturePlan Consultant if you feel this may apply to your plan.
3. May I use plan assets to purchase the bond?
Yes, plan assets may be used to purchase the bond.
4. How do I purchase a bond?
Bonds must be obtained from a surety or reinsurer that is named on the Bureau of the Fiscal Service’s Surety Bonds web page (https://www.fiscal.treasury.gov/surety-bonds/list-certified-companies.html). Neither the plan nor any interested party may have any control or significant financial interest, either directly or indirectly, in the surety or reinsurer, or in an agent or broker, through which the bond is obtained.
5. What are the penalties for not meeting the bond requirement?
There are serious consequences for not purchasing and maintaining a sufficient ERISA fidelity bond. Not having this required coverage can be a red flag to the DOL that they need to take a closer look at the plan. You’re not only at risk for a DOL audit, but also at risk for possible citations for not having this required coverage.
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