ERISA Bonding Requirements and the EBSA
On November 25, 2008, the Employee Benefit Security Administration issued Field Assistance Bulletin 2008-04 addressing the bond requirements for ERISA "plan officials." It includes clarification as to who must be bonded, responsibilities for bonding and exemptions from the bonding requirements.
Generally, every person who handles funds or property of an employee benefit plan must be bonded. Fiduciaries who handle funds are "plan officials" who must be bonded up to 10% of the amount of the funds he or she handles, up to a maximum of $500,000 per plan (or up to $1,000,000 per plan if the plan holds employer securities other than through a pooled investment vehicle). The DOL can impose a higher bond than the maximum but only after a required hearing. Plan officials are responsible for insuring that they are properly bonded, as are plan fiduciaries (which are also plan officials) who are responsible for making sure non-fiduciary plan officials are properly bonded.
Plan officials include the plan administrator and any employee of the plan sponsor who handles plan assets or makes directions with respect to the use of plan assets. The required bond is a fidelity bond that insures against losses due to fraud or dishonesty. Plans may also carry fiduciary liability insurance which may insure against breach of fiduciary duty, but ERISA does not require this. However, fiduciary liability insurance does not satisfy the fidelity bonding requirement. The plan itself purchases the bond.
Plans that are not subject to Title 1 of ERISA, such as church and governmental plans, are exempt, as are unfunded plans such as when benefits are paid exclusively through the general assets of the employer. Insured plans are still subject to the bonding requirement, as are any plans that require or receive employee contributions. An exception is made for Section 125 Plans that only receive contributions for the purpose of paying premiums for insurance benefits.
So please look over the guidance and make sure you have the right bonds in place and that the bonds you have cover the right people. And also check to make sure all of your plans that require bonding of plan officials have appropriate bonds. In light of the recent shenanigans on Wall Street, you have to protect your plans.
