F AQ: ERISA’S FIDELITY BONDING REQUIREMENT 1What is a fidelity bond?A fidelity bond is a form of insurance protection that covers the bondholding employer for lossesincurred as a result of fraudulent or dishonest acts by the individuals specified under the bond. Fundedretirement and welfare plans subject to the Employee Retirement Income Security Act of 1974 (ERISA)must obtain a fidelity bond covering at least 10% of the plan’s assets, up to a maximum of $500,000per loss. Additional coverage may be required for plans offering employer stock as an investmentoption. The cost of the bond may be paid from plan assets.A fidelity bond is different than fiduciary liability insurance, which is an optional form of coverage. Afidelity bond protects the plan from losses attributable to the fraudulent or dishonest actions of thosewith access to the plans assets, whereas fiduciary liability insurance generally protects the fiduciaryfrom losses due to a breach of fiduciary duty.Who must be bonded?ERISA requires that every person who handles plan assets be covered by a fidelity bond. This mayinclude the plan’s fiduciaries, employees, and the natural persons employed by the plan’s servicingvendors that handle plan assets. If the employer’s fidelity bond does not cover the natural personsemployed by the plan’s servicing vendors, the employer is advised to ensure that the servicing vendorhas obtained a fidelity bond or similar insurance covering the employer’s plan assets.An individual "handles" plan funds or property if he or she has the authority to transfer funds, negotiateproperty for value, or disburse or direct disbursement of cash or property.1 This FAQ is not intended to be legal advice and should not be construed as such. Information relayed herein isrepresentative of the Multnomah Group’s current understanding of the law. While the Multnomah Group has made everyreasonable effort to ensure that the information contained herein is factual, we do not warrant its accuracy. Additionally,this FAQ does not embody a comprehensive legal study, but rather reflects the information most often sought by ourclients. As the information contained herein is general in nature, you are urged to contact your legal adviser with questionsrelated to the specific application of these rules to your plan.
How does the Department of Labor know if my plan is covered by a fidelity bond?A plan is required to report on its Form 5500 whether the plan is covered by a fidelity bond, making iteasy for the DOL to monitor compliance with the bonding requirements. A plan fiduciary who fails toensure that those persons who handle plan assets are properly bonded may be personally liable forany losses to the plan attributable to the fraud or dishonesty of others.Where can I find additional information?Your consultant at the Multnomah Group can assist you with any fidelity bond questions you mayhave. You may also refer to the DOL’s Field Assistance Bulletin 2008-04, which contains 42 fidelitybond related questions and answers.Multnomah Group, Inc.Phone: (888) 559-0159Fax: (800) 997-3010www.multnomahgroup.comND: 4825-3545-4979, v. 1ND: 4825-3545-4979, v. 1