July 2, 2025 | 2-3 Minute Read
The Employee Retirement Income Security Act passed by Congress in 1974 (ERISA), requires that retirement plans maintain an ERISA Fidelity Bond to protect the assets from fraud or dishonesty committed by the plan fiduciaries – such as trustees and administrators – and any other individuals who handle plan assets.
What Constitutes Fraud or Dishonesty?
Fraud or dishonesty can include:
- Larceny
- Theft
- Embezzlement
- Forgery
- Misappropriation
- Or similar acts
Who Needs to Be Bonded?
A person handling plan funds or property must be bonded if their duties involve actions that could expose the plan to financial loss, such as:
- Physically handling cash, checks or similar property
- Transferring funds from the plan to themselves or third parties
- Negotiating plan property (e.g., real estate, mortgages, securities)
- Disbursing or directing the disbursement of plan funds
- Signing checks or negotiable instruments
- Supervising or having decision-making authority over any of the above tasks
Common Oversight
Many newly implemented plans overlook this requirement simply due to a lack of awareness. However, compliance is critical.
Bond Value Requirements
- Minimum bond amount: $1,000
- Maximum bond amount: $500,000
- Required coverage: At least 10% of the value of plan assets
- For newly established plans, use projected asset value, (e.g., based on payroll estimates) to determine bond coverage for the first year.
IRS Form 5500 Implications
When completing the required annual IRS Form 5500, there is a question regarding ERISA Fidelity bond coverage. Answering “No” may serve as a red flag to the IRS or Department of Labor and could trigger an audit or citation.
Important Distinctions
- An ERISA Fidelity Bond is not the same as employee dishonesty insurance or fiduciary liability insurance.
Practical Tips
- Contact your current liability insurance carrier to ask if they offer ERISA Fidelity Bond coverage – you may be eligible for a bundle discount.
- Consider purchasing a bond that allows for growth in plan assets or includes fluctuation guard.
- Once obtained, submit a copy of your ERISA Fidelity Bond to your Third-Party Administrator (TPA) for their records and for use in filing Form 5500.
Resource
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Holly Elliott
Holly Elliott is a Senior Retirement Plan Consultant at Benefits² Administrators. She has more than 10 years of experience working with qualified retirement plans.