An ERISA fidelity bond is a type of insurance that protects a 401(k) or 403(b) plan from losses caused by acts of fraud or dishonesty (e.g., theft, embezzlement or forgery) by “plan officials.” ERISA fidelity bonds can only be purchased from a surety or reinsurer that’s named on the Department of the Treasury’s Listing of Approved Sureties.

Generally, a 401(k) or 403(b) must be bonded for at least 10 percent of the total plan assets as of the first day of the plan year, subject to a $1,000 minimum. However, 401(k) or 403(b) plans are not obligated to have more than $500,000 in total coverage, with certain caveats. A plan can purchase more coverage, but it’s not required.

Yes. 401(k) and 403(b) plans must report the dollar amount of their fidelity bond on their annual IRS Form 5500 annual return/report filing. The government reviews these filings to confirm sufficient bonding.

There are no specific penalties. However, there are substantial risks associated with not meeting ERISA’s bonding requirements, including:

• Failing to report a sufficient bond on the Form 5500 can trigger a plan audit.
• It’s unlawful under ERISA for a plan not to have a fidelity bond at all times.
• 401(k) and 403(b) fiduciaries can be held personally liable for losses that should have been covered by a fidelity bond.

Under ERISA, fiduciaries may be “personally” liable for a breach of their responsibilities in the administration or handling of employee benefit plans. This is where Fiduciary Liability Insurance (FLI) comes in. Plan fiduciaries include plan trustees, plan administrators and members of a plan’s investment committee. Although FLI is not mandatory, the plan sponsor will want to consider protecting against a fiduciary breach that causes losses to plan assets. The FLI does not protect against theft or fraud since the fidelity bond does that — it is simply additional coverage to protect against fiduciary breach. It is likely that FLI insurance can be purchased from the same entity providing the mandatory fidelity bond.

An ERISA Fidelity Bond is required by the U.S. Department of Labor and protects the assets of the retirement plan from theft. Fiduciary Liability Insurance protects plan sponsors and their companies in the event of an actual or alleged breach of duty. Remember, even if you are not liable, you can be sued—and the defense costs alone can be ruinous. For example, it can cost over $600 per hour to secure a lawyer with an ERISA specialty if you are named in a lawsuit.

Yes! We partner with licensed providers to ensure our clients always have sufficient coverage. What’s more, our team of experts work directly with the provider to complete the necessary paperwork on our client’s behalf.